CoreWeave stock keeps falling as fears of AI spending drag down markets. Here’s the latest on what’s happening

Shares of CoreWeave Inc. (CRWV) have plummeted over 25% in just one week due to mounting worries surrounding the company's debt and the overall health of the "neocloud" industry. This week, the cloud-computing firm's stock plunged up to 7% during premarket trading as investors grappled with fears of excessive AI spending. The decline came after a 15.46% drop on the previous trading day.

AI-related companies worldwide are experiencing similar losses, including semiconductor giants like SK Hynix and SanDisk. SK Hynix's U.S.-listed shares dropped more than 6% in trading, while SanDisk saw a 5% decline in premarket trading. The broader market has also taken a hit, with South Korea's Kospi index falling more than 7% on Thursday and the Nasdaq-100 slipping over 2% on Wednesday.

The decline in AI shares like CoreWeave is attributed to several factors. Market research firm Gartner warned that over 80% of neocloud providers could cease to exist by 2030 due to cost pressures and a lack of a unique business model. Gartner expects significant consolidation in the neocloud market over the next four years, estimating that over $3.5 trillion in AI infrastructure spending could face impairment by the end of the decade.

Gartner's senior director analyst, Will Sommer, pointed out that AI companies would need to generate a cumulative $8.5 trillion in revenue through 2030 to cover capital spending, financing costs, and a 12% return on invested capital, which is considered the investment hurdle rate.

Specifically regarding CoreWeave, there are concerns about the company's debt levels. Its unsecured bond yields have reached 15%, a rate typically associated with distress. Analyst Madison Rezaei from Bernstein noted that investors are demanding higher compensation for owning CoreWeave's unsecured credit, with its 2032 bond now yielding around 14.8%, compared to a 9.625% coupon.

However, CoreWeave CEO Mike Intrator maintains that the company has ample deal flow to manage its debt, attributing the market's reaction to market misinterpretations rather than the company's business model.

Intrator told staff in an internal memo that the market is to blame, not the company's business model. He expressed confidence in their business model, customers, execution quality, and disciplined financial management. When reached for comment, CoreWeave pointed to its rivals' struggles, including weak IPO attempts and delayed debt financings, as factors affecting how CoreWeave is perceived.

Despite outperforming the broader market this year, CoreWeave's shares have underperformed year-to-date, falling 17.07% compared to a 14.88% increase for the Nasdaq Composite.