Key Points
CoreWeave fell 11.9% Friday to $61.39, capping a week in which its bonds fell to distressed levels. Bonds it sold in June at a 9.675% yield now yield about 15%.
The cost of insuring CoreWeave's roughly $50 billion of debt against default climbed to about 1,200 basis points this week, according to Reuters.
JPMorgan and Jefferies both called the selloff "overdone," pointing to capacity that is pre-sold under long-term contracts.
The PHLX Semiconductor Index dropped 3.8% Friday, its eighth straight decline. AMD fell 6% and Micron fell 5.6%.
The Nasdaq lost 4.5% for the week, while the Dow managed a small gain. Netflix, SpaceX, Tesla and Meta all report next week.
The AI boom has a new warning light, and it isn't flashing in the stock market.
It's flashing in the bond market.
CoreWeave rents out the Nvidia-powered computing capacity that companies like Microsoft, OpenAI and Meta use to train and run AI models. To build that capacity, it borrowed heavily. About $50 billion worth, according to LSEG data.
This week, the people who lent it that money got nervous.
The Bond Market Is Sending a Message
In June, CoreWeave sold bonds at a yield of 9.675%. This week, those same bonds traded at a yield of about 15%, Reuters reported. On Thursday, the yield on its 2032 bonds hit 15.77%, according to CNBC.
When a bond's yield jumps like that, it means its price has collapsed. Investors are demanding much more money to hold the debt because they see more risk of not getting paid back.
The cost of insurance against a CoreWeave default tells the same story. Five-year credit default swaps blew past 1,100 basis points on Thursday and reached about 1,200 this week. In plain English, protecting $10 million of CoreWeave debt now costs roughly $1.2 million a year.
"CoreWeave is absolutely the canary in the coal mine," Max Frumes, global head of distressed and leveraged finance at 9fin, told Reuters. "This is going to be a turning point in the pricing and availability and structure of credit that's supporting the AI boom."
The stock has been swinging wildly. CoreWeave plunged 15.5% on Wednesday and bounced 5.9% on Thursday. On Friday, it gave all of that back and more, falling 11.9% to $61.39.
Why Now
Three things hit at once.
First, the price of money went up. Hot inflation data put another Fed rate hike on the table, and the 10-year Treasury yield spent much of the week above 5%. That raises the cost of every new loan CoreWeave needs.
Second, the AI customers started to look less invincible. Anthropic told investors its third-quarter revenue reached $16.8 billion, up from $11.6 billion in the second quarter, CNBC reported. That's huge growth, but Reuters Breakingviews noted it slowed to 45% as a price war in AI eroded revenue per unit.
Third, the whole chip sector cracked. The PHLX Semiconductor Index fell another 3.8% on Friday, its eighth straight losing session. Yahoo Finance noted that would match the index's longest losing streak since 2008. AMD dropped 6% to $528.75, Micron fell 5.6% to $878.84 and Nvidia slipped 1.4% to $214.13. Investors are now arguing about the checkbook, not the product, even after TSMC posted its sixth straight record profit and the stock fell anyway.
"As we move to a capex cycle funded out of debt rather than simply free cash flow, we have to increasingly respect the credit price action," Deutsche Bank's Jim Reid wrote.
Wall Street Is Split
Not everyone is running for the exits.
Jefferies analyst Brent Thill called the selloff "overdone" on Friday. He argued that CoreWeave's pricing power is rising even as its debt costs climb. "Higher rates on future deals are a fair risk," Thill wrote, "but pricing for capacity is rising much faster in the near term."
JPMorgan's Samik Chatterjee agreed. "Datacenter demand is robust and has improved in recent months, rather than moderated," he wrote, adding that CoreWeave's "capacity is pre-sold under long-term take-or-pay contracts rather than building for estimated demand."
That's the bull case in one sentence: the customers have already signed.
The bear case is that a signed contract is only as good as the customer behind it. Lawyers who specialize in these deals told CNBC they expect disputes over how iron-clad take-or-pay contracts really are.
And CoreWeave isn't alone. Carlyle estimated that private credit could be called on to finance roughly $1 trillion of the AI computing buildout. If lenders start demanding 15% to fund it, a lot of projects stop penciling out.
The Rest of Friday
The selling wasn't limited to CoreWeave. Nebius, another AI cloud provider, fell 12.2% to $165.47. Oracle dropped 4.6% to $128.23, and Meta fell 3.7% ahead of its earnings next week.
The S&P 500 fell 1.1% to about 7,659, and the Nasdaq dropped 2.1% to about 26,140. The Dow held up better, slipping 0.3% to about 52,002. The VIX, Wall Street's fear gauge, jumped 22% to 20.14.
For the week, the Nasdaq lost 4.5% and the S&P 500 fell 1.9%. The Dow actually gained 0.7%, as money rotated out of tech and into banks and industrials.
The 10-year Treasury yield ended near 5.08%. Oil was the other worry. U.S. crude topped $100 a barrel during the day after attacks near the Strait of Hormuz and strikes on Russian refineries, CNBC reported.
Earnings outside of tech were steadier. Alcoa rose 2.6% after earning $1.82 a share, well above the $1.51 analysts expected. Travelers gained 1.5%, Truist added 1.1% and Regions Financial rose 0.5% after beating estimates. J.B. Hunt fell 2.8% after missing, and Twilio sank 10.6% on valuation concerns.
What Lands Next
Next week is the biggest test yet for the AI trade. Netflix and SpaceX report Tuesday. Tesla, Meta, IBM and Lam Research report Wednesday. Meta alone has guided to as much as $145 billion in capital spending this year.
The Fed goes quiet ahead of its October 27-28 meeting, so the market will have to read the bond market without help.
CoreWeave just showed how fast the mood can change when the people writing the checks get nervous. Keep watching the bonds. They moved first.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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