Cracks emerge in AI borrowing boom as CoreWeave, Oracle and SoftBank debt worries grow

The artificial intelligence boom has been fueled by trillions of dollars in borrowed money, but concerns are growing over the ease of obtaining more funds and ensuring repayments. This uncertainty became evident when CoreWeave, a debt-laden data center company, experienced a sharp decline in its bond prices, with investors expressing a more than 60% likelihood of the company failing to meet its obligations.

Other AI giants, such as Oracle and SoftBank, have also seen declines in their bond prices, although not to the same extent as CoreWeave. This could result in losses for investors holding existing bonds and force companies to pay higher interest rates when borrowing again, increasing the costs of their AI projects. The market for insuring corporate debt against default has also witnessed significant changes, with Wall Street investors bidding up the prices of these instruments, such as those insuring SoftBank.

The increase in the spread of interest demanded for risky AI debt investments has risen by over 50% over the past six months. The market appears to be on a knife's edge, with many investors closely monitoring the situation. Experts warn that the ongoing borrowing spree could have far-reaching consequences for the AI industry and the broader financial landscape.