CoreWeave shares sink 16% as its bond yields near 15% on AI debt worries

What happened

CoreWeave, which rents out computing power built on Nvidia chips, saw both its stock and its debt sell off on Wednesday. The shares dropped 16%, CNBC reported, while the yield to maturity on its 9.625% notes due 2032 reached 14.8% and its 9.75% notes due 2031 traded near 14.9%. The slide gathered pace after investor Chamath Palihapitiya posted a chart on Tuesday showing the 2032 bond's yield touching 15%. In a staff memo seen by CNBC, chief executive Mike Intrator said the company was confident its backlog more than supports all of its debt obligations.

What it means

A bond's yield moves opposite to its price. When investors sell a company's bonds and the price drops, the return a new buyer would earn rises. A yield near 15% on debt that pays a fixed coupon of about 9.6% means the bonds trade well below face value, and that lenders now see much higher risk. It does not raise CoreWeave's interest bill on existing bonds, but it signals that any new borrowing or refinancing would cost far more.

Borrowing costs already weigh heavily on the company. CoreWeave's second-quarter net interest expense was $640 million, up from $267 million a year earlier, according to its results, while it posted a net loss of $626 million on revenue of $2.575 billion. Revenue more than doubled, and the company raised more than $10 billion of unsecured and convertible debt during that quarter. One analyst at Freedom Capital Markets told CNBC that CoreWeave's balance sheet is weaker than those of other neoclouds, specialist AI cloud firms, because it has borrowed more and is building more data centers.

The counterweight is contracted demand. CoreWeave reported about $104 billion of revenue backlog at the end of June, meaning future sales already signed with customers. That backlog is real, but it only turns into cash once data centers are built and running, so the company has to finance the construction first. That gap is what worries bond investors.

The selling spread beyond one company. Oracle fell 9% and its bond yields rose, Nebius dropped 11% and Dell lost nearly 12%, while the Nasdaq Composite slid 1.4% on a day when hotter inflation data also pushed Treasury yields higher. A Wells Fargo Investment Institute strategist told CNBC that lenders are now scrutinizing AI borrowers far more closely than earlier in the year.

The bull case

CoreWeave has about $104 billion of signed future revenue, revenue that more than doubled in the latest quarter, and access to a wide range of funding including term loans, convertible bonds and a $1 billion investment from Jane Street. If new data centers come online and margins improve as one analyst expects, today's high yields could prove an overreaction to a social media post and a hot inflation day.

The bear case

Interest costs already rival the company's losses, and bond buyers are now asking for close to 15% to lend. If that persists, refinancing and expansion become much more expensive just as hundreds of billions of dollars of AI spending need funding. Any delay in building capacity or a weaker customer could make the backlog harder to convert into cash, pressuring both shares and bonds further.