vcg | China Visual Group | Getty Images CoreWeave shares and bonds took a hit on Wednesday as investor fears grew that some technology companies were taking on too much debt for the development of artificial intelligence. Shares of the so-called neocloud fell 16%, while yields on its debt rose. The yield to maturity of its 9.625% bond due 2032 is 14.8%, while that of its 9.75% bond due 2031 is around 14.9%. Bond yields move inversely to prices. While investors were once excited to get in on the AI action, investor sentiment has begun to change, said Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute. Now, investors are demanding more risk compensation, he said. “The era of easy money that we experienced in the first nine months of the year is beginning to disappear and dissipate,” Alvarado said. “Now the extra dollar or the marginal dollar will be put under more of a microscope in the concessions that the issuer is giving to you.” Technology investor Chamath Palihapitiya, founder and CEO of investment firm Social Capital and CEO of artificial intelligence company 8090, highlighted CoreWeave’s rising returns on Tuesday evening. That prompted Elon Musk, CEO of Tesla and SpaceX, to respond: “Ouch.” Palihapitiya shared a chart of the 2032 bond, noting that the yield “touched 15%” and then “closed at a new high” on Tuesday. He also included some of his deep dive into whether AI development is creating a private credit bubble, in which he noted “how little additional lenders seem to charge for AI risk.” Balance sheet ‘relatively bad’ CoreWeave’s balance sheet is “relatively bad” compared to that of its neocloud peers, said Paul Meeks, head of technology research at Freedom Capital Markets. This is because CoreWeave has taken on more debt and is currently building more data centers, he explained. “Yields have skyrocketed because there is increasing concern (which I don’t share) about the resources of these guys. [being] over time they will be able to pay their interest expense,” Meeks said. “It’s definitely not a deteriorating situation,” he added. “It may not be getting better, and I really didn’t expect it to get better until these data centers were up and running.” He expects the company to report flat margins from June to September and expects margins to see a pretty significant improvement between September and December. CoreWeave’s next quarterly results are expected in November. Tech Sector SuccessCoreWeave isn’t the only tech company seeing the fallout from Concerns about AI’s debt loads, Oracle shares fell nearly 7% on Wednesday. Yields on its bonds were also higher, with the yield to maturity on its 6.25% bond due in November 2032 sitting at 7.24%. neocloud, Nebius, fell 9% will exceed $1 trillion a year, the bank said.
