The AI Build-Out's Debt Is Cracking at the Edges, Starting With CoreWeave (CRWV)
CoreWeave's bonds yielded close to 15% in October and its shares lost 37% in the month, as lenders pulled back from the smaller companies building AI capacity. The giants are paying more too.
Part of the running storyFree Cash Flow Is Now the Scorecard for AI Spenders: What the Evidence SaysOn Friday, CoreWeave (CRWV) and Nebius Group (NBIS), two of the biggest companies that rent out AI computing power, plunged again, capping an October in which CoreWeave lost 37% and Nebius 35%, by our price files.
Their lenders are worried too. CoreWeave’s notes due 2032 yielded close to 15% in mid-October, investingLive and Admiral Markets reported, and investingLive said the company’s bonds were trading like distressed debt. “Data center bonds are having their Darwin moment, where the weakest credits struggle to survive,” said Ludovic Subran, chief investment officer at Allianz, according to EnterpriseAM’s summary of a Financial Times report.
Where the cracks are
The stress sits with the borrowers furthest from the cash: the neoclouds, the newer firms that rent out AI computing power, and the project debt behind data centers built for bigger tenants. The table shows what was reported in October.
| Debt | What happened | Reported by |
|---|---|---|
| CoreWeave notes due 2032 | Yield touched 15% on 13 October; about 14.8% on 14 October | Admiral Markets, investingLive |
| A CoreWeave unsecured bond | Fell below 80 cents on the dollar | Financial Times, via EnterpriseAM |
| Debt behind Meta’s Hyperion data center | Fell from above face value in early July to just under 92 cents | Financial Times, via EnterpriseAM |
| Debt on QTS’s Project Excalibur, leased to Microsoft | Below 88 cents | Financial Times, via EnterpriseAM |
| Debt on Oracle’s Michigan campus | Fell from face value in July to 87 cents | Financial Times, via EnterpriseAM |
A bond below face value means lenders now want a higher return to hold it. Debt “priced too tight for execution risk” is being repriced after power and construction delays, Subran said, according to the same summary of the FT.
CoreWeave’s shares took the hit with its bonds. They plunged 15.5% on 14 October, by our price files, and they hit a 52-week closing low on 23 October. Nebius shows how fast these stocks swing both ways: even after October, it is still up 84% this year.
Why the edges matter
The research firm Gartner forecasts that 80% of neoclouds will be absorbed or cease operations by 2030, CNBC and EnterpriseAM reported. One AI data-center company has already stepped back: Firmus, an Nvidia-backed Australian firm, withdrew plans to go public earlier in October, both outlets reported.
The funding gaps are large. Nebius Chief Executive Arkady Volozh told a Citi conference in September that the company’s build-out plan needs about $250 billion of financing, and “so far, we financed maybe 20% of that,” EnterpriseAM reported.
Landlords were tightening first. As early as April, data-center operators were treating investment-grade credit as a minimum for neocloud tenants, or asking for letters of credit or parent backing, Data Center Knowledge reported. “The core issue is credit and underwriting risk,” Matt Brown, chief operating officer of Core Scientific, told the publication.
The giants are paying more too. The cost of insuring Meta’s (META) debt against default hit a record after its results on 21 October, Reuters and CNBC reported, and the Fed’s next move may be a hike, which would raise the cost of every refinancing: traders put the odds of a December increase at about 85%, according to Bloomberg data cited by Yahoo Finance.
The case that it stays at the edges
“The credit risk of some neocloud companies should not be read as a broader pullback in AI investment,” Park Jun-young, an analyst at Hanwha Investment & Securities, told the Korea JoongAng Daily on 29 October. “Major hyperscalers have room to keep investing, backed by a solid operating cash flow,” he added.
The numbers back him for now. Meta ended September with $82.45 billion of cash and marketable securities, against $80.92 billion of long-term debt, its results release showed.
The suppliers and the companies themselves push back too:
- Nvidia doesn’t see a backstop being needed. Chief Executive Jensen Huang said CoreWeave won’t need one and that “their cost of capital is actually decreasing,” Bloomberg reported, according to EnterpriseAM; Admiral Markets carried the same view.
- CoreWeave says its contracts cover its debt. “We are confident in our backlog which more than supports all of our debt obligations,” Chief Executive Mike Intrator wrote in an internal memo, Bloomberg reported, according to Admiral Markets; investingLive, citing CNBC, said the memo called the market’s reaction irrational.
The second point is the one investors can check: a backlog of signed contracts is only as good as the customers behind it and the financing that turns it into working data centers.
What we’ll learn next
- CoreWeave reports third-quarter results on Tuesday 10 November, with its call at 5 p.m. ET. Its new debt total and what it says about financing costs are the first test of Intrator’s memo.
- Nvidia reports on Tuesday 17 November, with its call at 5 p.m. ET.
- The Fed decides on rates on 8 and 9 December.
We think the cracks stay at the edges for now: the companies under strain borrow against long-term customer contracts, while the giants still pay for most of their spending out of their own cash flow, by our count from their filings. If the project bonds tied to Meta, Microsoft and Oracle keep falling, the edge is moving inward, and that’s the line we’ll watch.
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Mostly Markets is for information and education only and isn't investment advice. Dev Malhotra is a pen name. Prices are from Nasdaq and CNBC as of the time stated.
