CoreWeave’s slump puts spotlight on debt behind AI boom

On October 15, 2024, shares and bonds of CoreWeave, an AI cloud company backed by Nvidia, experienced another significant drop despite CEO Mike Intrator's claims of a strong deal backlog. The loss-making company, burdened with approximately $50 billion in debt, has become emblematic of investor concerns that the AI data center boom may be largely financed through borrowed money.

This has led to broader worries about the sustainability of the AI industry and the potential for a collapse in demand to outweigh the rapid spending that has fueled its growth.

CoreWeave's slump, which has contributed to a global downturn in AI stocks, highlights investor skepticism about whether future AI revenue can match the spending that has driven the industry's expansion. The stock declined by 7.5% in early trading, after falling over 15% on Wednesday, making it one of the most significant decliners in the tech sector.

Axel Rudolph, chief technical analyst at IG Group, noted that the market is beginning to question the distinction between demand for AI and the profitability of the business model.

The rising cost of capital has put additional pressure on heavily leveraged players. CoreWeave's bond yield for April-issued bonds due in 2031 surged above 16.2%, a level typically associated with distress. This has raised concerns about the company's default risk, with its debt insurance cost climbing to around 1,000 basis points, indicating a near 63% chance of default within five years.

Despite Nvidia's agreement to purchase unsold CoreWeave capacity through April 13, 2032, the company's financial situation remains concerning. CoreWeave, which went public in March 2025, is part of a group of newer cloud providers known as neoclouds, which rent out computing power from scarce and expensive Nvidia processors. These providers often rely heavily on borrowing to acquire the necessary chips.

With annual capital spending forecast to reach as much as $39 billion, CoreWeave is expected to report nearly $13 billion in revenue this year, with a loss of $2.13 billion, according to analysts' estimates.