CoreWeave’s debt is becoming the whole AI industry’s problem

Key points

• CoreWeave's bonds entered distressed territory and its shares fell more than 20 percent since Tuesday's close.
• The company owed more than $35 billion as of its second quarter earnings and lost over a billion dollars in the first half of the year.
• CoreWeave holds $103.7 billion in remaining performance obligations, with about 40 percent due in 2028.

CoreWeave's bonds slipped into distressed territory last week, a status defined by investors demanding 1,000 basis points more in yield than government bonds offer. Its shares have fallen more than 20 percent since Tuesday's close, and the strain appeared to spread to other AI companies, including Oracle.

The concerns intensified after Chamath Palihapitiya questioned whether the AI buildout is a private credit bubble, and cofounder Brannin McBee told the Financial Times the company wants investment-grade debt so it can borrow from insurers.

Debt and losses

CoreWeave owed more than $35 billion as of its second quarter earnings, partly because it pioneered using GPUs as loan collateral. The company lost more than a billion dollars in the first half of the year, and it has no business beyond selling compute.

The problem is not that credit profiles have changed in the last year, it’s that we’ve got another year and a half of supply coming

— John Yovanovic

Contracts and customers

The company reported $103.7 billion in remaining performance obligations as of the second quarter, with about 40 percent due in 2028 and limited cancellation options for customers. Microsoft, OpenAI and a third undisclosed customer, probably Nvidia, generated almost three-quarters of second quarter revenue.

Bloomberg quoted John Yovanovic, co-head of leveraged finance at MetLife Investment Management, saying the issue is not changed credit profiles but "another year and a half of supply coming."