CoreWeave (CRWV) shares fell approximately 16% on Wednesday, October 14, as yields on the artificial intelligence cloud provider's bonds approached 15% and investor attention turned to the debt financing the sector's data-center buildout. The decline followed growing concern over borrowing used to fund AI infrastructure, and several other AI-related stocks came under pressure as markets reassessed the cost of expansion.

Bond Yields Climb as Debt Concerns Build

CoreWeave's 9.625% bonds maturing in 2032 yielded 14.8% in Wednesday's bond trading, CNBC reported, while its 9.75% notes due in 2031 yielded about 14.9%. Bond prices fall when yields rise, and the wide gap between the coupons and Wednesday's market yields shows how much more compensation lenders now demand to hold the company's debt.

Investor Chamath Palihapitiya said the 2032 bond yield had reached 15% on Tuesday, posting a chart on X. Elon Musk responded with the word “yikes,” according to CNBC.

Wednesday's inflation report added a further concern for borrowers, since Federal Reserve policy helps set the baseline for corporate borrowing costs. A recent report showed expectations for a Federal Reserve rate hike in October rising after U.S. annual inflation reached 3.7% in September.

Debt Payments Draw Investor Attention

CoreWeave reported $640 million in net interest expense during the second quarter, more than double the $267 million recorded in the same period a year earlier. The increase has added to questions about the company's future debt obligations.

During the quarter, CoreWeave raised more than $10 billion through unsecured debt and convertible bonds and also secured a $3.1 billion term loan — more than $13 billion in new financing in a single quarter. The funds supported its expansion of AI computing capacity, and the scale of the raise illustrates how capital-intensive the industry's data-center buildout has become.

The borrowing comes amid an industry-wide spending surge. JPMorgan estimates that large cloud providers will spend $800 billion on AI infrastructure this year and more than $1 trillion annually by 2027. Separately, a recent analysis found that 42 AI stocks drove 67% of S&P 500 price returns since early 2024.

Wider AI Selloff Reaches Other Stocks

The weakness extended across the technology sector on Wednesday. Oracle shares fell nearly 7%, Nebius lost about 9%, and Dell dropped 10%, while the Nasdaq Composite declined 1.4%. Oracle's 6.25% bonds due in November 2032 yielded 7.24%, a yield far below CoreWeave's that shows credit markets are pricing the two issuers' debt very differently.

Luis Alvarado of Wells Fargo Investment Institute told CNBC that investors now demand higher returns for taking on AI-related lending risks. Freedom Capital Markets analyst Paul Meeks, however, said concerns over CoreWeave's ability to pay its debts were unwarranted.

Other technology shares had already weakened. On Tuesday, Applied Materials stock fell more than 8% despite continued demand for AI chips and plans to increase manufacturing capacity.

The International Monetary Fund warned on Tuesday that an AI market correction could tighten global financial conditions. It said large cloud providers now account for 10% of global investment-grade bond issuance, up from less than 1% in 2024.

CoreWeave expects to report its next quarterly results in November, when updated interest expense and debt figures will provide the next reading on the borrowing costs at the center of this week's concerns.

Source: Blockonomi