CoreWeave stock, bond set for weekly plunge as rate-hike fears hit AI bet

Oct 16 — CoreWeave's shares and bonds were set for steep weekly losses on Friday, underscoring ​investor worries over the cloud-computing company's $50 billion debt load that has rippled across the AI industry.

The Nvidia-backed company came into focus this week after the latest inflation data boosted bets ‌on interest-rate hikes, raising the chances of higher payout on borrowings by data center and AI infrastructure firms with huge debt.

CoreWeave ⁠shares fell more than 6% in early trading ​after tumbling over 15% this week, their worst ⁠week in nearly two months.

"A hot inflation print triggered a sharp selloff in CoreWeave because its ‌business model is a highly ‌indebted play on future data center demand," BCA Research analysts said.

"Although the rest of ⁠the tech complex is also sensitive to the pace ⁠and magnitude of AI adoption and use, it is, on average, considerably less sensitive to interest rates," they said.

The selloff is a stark reminder that AI companies' reliance on debt is becoming a risk for investors and punctures the notion that companies at the heart of the AI boom are immune to macroeconomic headwinds.

CoreWeave's stock has already lost about a fifth of ‌its value, or nearly 9.6 billion, so far this month.

DEBT MARKET JITTERS

The ​yield on CoreWeave's October 2031 maturity dollar bond briefly surged past 16% on Thursday. It is set to decline for a fifth straight week, down about 3 cents on the dollar this week.

The cost of insuring against CoreWeave's debt has surged past 1,000 basis points to record highs this week, according to data from S&P Global Market Intelligence.

Investor worries over CoreWeave's massive debt load and distressed bond yields had a contagion affect that impacted rival Nebius Group, whose ​shares were set for their steepest weekly fall in two months.

Still, several analysts were not ready to throw in ‌the towel. Evercore ‌analysts maintained their ⁠outperform rating on CoreWeave stock.

"The markets appear to be extrapolating a higher secondary-market bond yield as evidence the business model has stopped working, which we don't think is the case," they wrote in a note.

Others argued the rout in CoreWeave should not be seen as a sign that the AI rally is ‌coming to an end. "You cannot ​take CoreWeave as the poster child for AI," said Tommaso ‌Leodari, chief investment officer at ⁠Dubai-based hedge fund ​Index & Cie.

(Reporting by Shashwat Chauhan and Niket Nishant in Bengaluru; Additional reporting by Vidya Ranganathan in London; Editing ​by Arun Koyyur)

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