Updated 2 - CoreWeave stocks and bonds are expected to fall sharply this week as concerns over rate hikes dampen market confidence in AI investments.

The share price data in the third paragraph will be updated after the market opens

Niket Nishant/Shashwat Chauhan

Reuters, Oct 16 - Shares and bonds of CRWV.O, a CoreWeave subsidiary, are set to post a sharp weekly loss on Friday, highlighting investors’ concerns over the cloud computing company's $50 billion debt burden, which has already impacted the entire artificial intelligence industry.

This company, backed by Nvidia, was in the spotlight this week after fresh inflation data increased market expectations for interest rate hikes (link), making it more likely that over-leveraged data centre and AI infrastructure businesses will face rising borrowing costs.

CoreWeave shares dropped more than 6% in early trading, after already plunging over 15% this week, marking the worst single-week performance in nearly two months.

Analysts at BCA Research said: “Higher inflation data triggered a CoreWeave sell-off because its business model relies heavily on debt to bet on future data center demand.”

“While other companies in the technology sector are also sensitive to the speed and scale at which AI is being adopted and applied, in general, their interest rate sensitivity is much lower,” they added.

This sell-off is a vivid reminder that AI companies' reliance on debt is now an investor risk, puncturing the view that “core AI boom companies can be immune to macroeconomic headwinds.”

So far this month, CoreWeave's share price has dropped about one fifth, erasing nearly $9.6 billion in market value.

https://www.reuters.com/graphics/COREWEAVE-STOCKS/lgvdbqwmlvo/chart.png

Bond market turmoil

On Thursday, the yield on CoreWeave’s dollar bond due in October 2031 US21873SAG30=TE briefly soared above 16%. The bond’s yield is set to fall for the fifth straight week, having dropped about three cents this week.

According to data from S&P Global Market Intelligence, the cost of credit default swaps (CDS) on CoreWeave’s debt topped 1,000 basis points this week for the first time ever.

Investor concerns over CoreWeave’s large debt burden and the high-yield distressed bonds triggered a chain reaction, affecting rival Nebius Group (NBIS.O), whose share price is set for its biggest loss in two months this week.

Nevertheless, several analysts are unwilling to give up. Evercore analysts maintained their “outperform” rating on CoreWeave shares.

“The market appears to interpret the rise in secondary market bond yields as evidence that the business model is broken, but we disagree,” they wrote in a research note.

Other analysts believe CoreWeave’s sharp drop shouldn’t be seen as a sign the AI boom is ending. “CoreWeave should not be seen as representative of the AI industry,” said Tommaso Leodari, Chief Investment Officer at Dubai-based hedge fund Index & Cie.

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