CoreWeave debt fears shake AI industry investors

Investors are growing worried about the financial risks of the artificial intelligence boom as CoreWeave faces rising debt pressure.

The company provides computing power for AI applications and has borrowed heavily to expand its infrastructure.

CoreWeave’s debt came under pressure yesterday as investors sold its bonds, with credit markets pricing in a greater than 60% chance of insolvency within five years.

Although the stock rebounded yesterday afternoon following Wednesday’s 15% plunge, it remains down 13% for the week as a broader AI sell-off reflects growing doubts about Silicon Valley’s borrowing-driven infrastructure boom.

CoreWeave has accumulated more than $51 billion in debt and other financial obligations. Its borrowing costs have increased sharply as investors question whether the company can generate enough cash to repay its loans.

The cost of insuring CoreWeave’s debt against default has also surged. This signals that investors see a greater risk of financial trouble.

The company came under pressure after co-founder Brannin McBee told the Financial Times in an interview published Wednesday that it was seeking to tap insurers’ “unlimited” capital pool. Meanwhile, stronger-than-expected inflation data increased the prospect of Fed rate hikes, which could raise the company’s debt-servicing costs.

CoreWeave’s dependence on Nvidia for both financing and AI chips has raised concerns, particularly given Nvidia’s 10% ownership stake. CEO Jensen Huang tried to ease those fears yesterday, pointing to CoreWeave's falling borrowing costs. His comments helped lift sentiment, with the stock gaining nearly 6% by the close.

Other AI infrastructure companies, including Nebius and Iren, also faced market pressure. Investors fear that companies spending heavily on chips and data centers may struggle if revenue doesn't keep pace with those investments.

CoreWeave CEO Mike Intrator defended the company’s position and highlighted its order backlog of more than $100 billion. He said these contracts strongly support its financial commitments.

However, analysts warn the company must turn its contracts into cash. Concerns have also spread to Oracle, raising fears that financial pressure could affect the wider AI industry.