CoreWeave credit default swaps hit distress levels as investors sour on AI debt

Key points

• CoreWeave's five-year credit default swaps hit distress levels above 1,140 basis points.
• The yield on CoreWeave's 9.75% bond due 2031 reached 15.78%.
• AI-related stocks fell, with CoreWeave, Nebius, and Iren all declining.

CoreWeave's credit stress worsened on Thursday as a broader sell-off hit AI-related names. The company, a so-called neocloud, has taken on more than $51 billion in debt and obligations to fund its AI infrastructure buildout. Stock and bond investors are now pushing back over concerns about AI overspending and debt levels.

Yields on CoreWeave's debt kept climbing. The yield to maturity on its 9.75% bond due in 2031 reached 15.78%, and the spread on its five-year credit default swaps at one point soared above 1,140 basis points. It last stood at 1,088 bps, a 33% week-over-week jump and 177% higher than a year ago.

Pressure spreads to AI stocks

Credit concerns are spilling into AI equities. CoreWeave's stock fell again Thursday after dropping 15.5% on Wednesday. Other neocloud stocks were also under pressure: Nebius was down 5% and Iren sank 8% in Thursday trading.

Anxiety about AI overspending is spreading as well. Shares of Micron Technology and Advanced Micro Devices shed 4% and 6%, respectively, following a big sell-off in South Korean chip stocks.

When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally

— Mike Intrator

What analysts and the CEO said

The market is "basically saying 'no mas' to AI debt without operating cash flow support," the Evercore ISI trading desk said. A spread level of 1,000 basis points or above is generally a sign of credit distress, said Gavan Nolan, executive director of fixed income pricing at S&P Global Market Intelligence. Nolan said no one questions demand for CoreWeave's services, since it has contracts with all the big hyperscalers, but the question is whether the cash flows will arrive.

CEO Mike Intrator dismissed the market moves on Wednesday, according to a memo obtained by CNBC. "When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally," he wrote. "We are confident in our backlog which more than supports all of our debt obligations." Deutsche Bank said the backlog is over $100 billion, with around two-thirds with investment-grade counterparts including Microsoft, Meta, IBM and Caterpillar. The firm reiterated its buy-rating on the stock Wednesday, calling the dislocation a buying opportunity.

Jim Reid, global head of macro and thematic research, said the concern can become a self-fulfilling prophecy and risks triggering broader issues in other AI-related names. Oracle's five-year CDS spread also spiked this week, last at 288 basis points, a more than 12% increase in one week. Reid said a downgrade from its BBB rating would risk pressuring IG-only investors into forced sales.