CoreWeave stock fell 16% amid investor fears over heavy AI infrastructure borrowing, with bond yields approaching 15%. The selloff spread to other tech firms, including Oracle and Nebius.
Shares of CoreWeave dropped 16% on Wednesday as investor concerns grew that technology companies are borrowing too heavily to fund the artificial intelligence build-out. The sell-off coincided with a surge in yields on the company's debt, signaling increased risk perception among lenders.
The yield to maturity on CoreWeave's 9.625% bond due in 2032 rose to 14.8%, while the yield on its 9.75% bond due in 2031 reached approximately 14.9%. Bond yields move inversely to prices, meaning the rising yields reflect falling bond prices.
Tech investor Chamath Palihapitiya, founder and CEO of Social Capital, highlighted the trend on X late Tuesday, noting that the 2032 bond yield "touched 15%" and "closed at a new high." Tesla and SpaceX CEO Elon Musk responded to the post with the word "yikes."
Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute, said investor sentiment has shifted. "The era of easy money, which we experienced in the first nine months of the year, is starting to disappear and dissipate," Alvarado said. He noted that investors are now demanding more risk compensation.
The concerns over AI debt loads affected other technology companies. Oracle shares fell nearly 7%, and the yield on its 6.25% bond due in November 2032 rose to 7.24%. Nebius shares dropped 9%, and Dell shares fell 10%. The Nasdaq Composite index lost 1.4% on Wednesday.
Paul Meeks, head of technology research at Freedom Capital Markets, described CoreWeave's balance sheet as "relatively bad" compared to its neocloud peers because the company has done more borrowing and is building more data centers. However, Meeks stated, "It’s definitely not a deteriorating situation," adding that he did not expect improvement until the data centers are operational.
Companies are turning to the credit market to finance AI infrastructure projects, leading to a jump in supply. According to JPMorgan, hyperscalers are on track to spend $800 billion this year, with annual spending expected to exceed $1 trillion by 2027.
CoreWeave reported net interest expense of $640 million in the second quarter, more than double the $267 million reported a year earlier. During that quarter, the company raised more than $10 billion in unsecured debt and convertible bonds, along with a $3.1 billion term loan. The International Monetary Fund warned on Tuesday that an AI-related market correction is one of three risks that could trigger a sharp tightening of financial conditions, noting that hyperscalers now account for 10% of global investment-grade bond issuance, up from under 1% in 2024.
The sharp decline in CoreWeave's stock and the spike in its bond yields highlight growing scrutiny of the debt financing fueling the AI infrastructure boom. As borrowing costs rise, the sustainability of aggressive expansion plans for companies like CoreWeave, Oracle, and Nebius comes under greater pressure, potentially impacting the broader technology sector and financial markets.
Sources
This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.
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