From The Verge · Elizabeth Lopatto · · 2m
CoreWeave's debt crisis spreads across AI
The GPU rental company's bonds hit distressed levels, raising questions about whether the entire AI buildout is unsustainable.
In brief
The GPU rental company's bonds hit distressed levels, raising questions about whether the entire AI buildout is unsustainable. CoreWeave's distressed debt and falling stock price have triggered broader concerns about AI industry sustainability, though the company's major customer contracts may keep it afloat for now…
CoreWeave's bonds hit distressed territory
CoreWeave's bonds slipped into distressed territory last week when investors demanded one thousand basis points more in yield than government bonds offer.
SPAC King raises AI bubble concerns
Chamath Palihapitiya noticed CoreWeave's distressed debt and asked whether the AI buildout was a private credit bubble. CoreWeave shares fell more than twenty percent since Tuesday's close.
CoreWeave wants to borrow from insurers
Cofounder Brannin McBee told the Financial Times CoreWeave wants investment-grade debt to borrow from insurers, whose capital is unlimited. This alarmed investors the company would borrow even more.
“unlimited”
More debt supply is coming
John Yovanovic, co-head of leveraged finance at MetLife Investment Management, said the problem is not that credit profiles changed, but another year and a half of supply is coming.
“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”
CoreWeave owes over thirty five billion dollars
As of second quarter earnings, CoreWeave owed more than thirty five billion dollars. The company pioneered GPUs as loan collateral but lost more than a billion dollars in the first half of the year.
Massive customer contracts provide cushion
CoreWeave has one hundred three point seven billion dollars in remaining performance obligations as of second quarter.About forty percent is due in twenty twenty eight.
Customers unlikely to let CoreWeave fail
Microsoft and Nvidia are probably good for the money.If CoreWeave goes belly up, there will be plenty of collateral damage in the market, so they are unlikely to push the company over the edge themselves.
Contagion spreads to other AI companies
Anxiety around CoreWeave has made things shaky for other companies with significant AI debt. Oracle shares fell almost ten percent in the same timeframe, and there has been a sell off in Oracle bonds too.
The music keeps playing for now
CoreWeave is probably fine as long as it can continue to pay off its debt. Only when the AI boom falters will we find out if the bare metal business is actually viable.
What it means
CoreWeave's distressed debt and falling stock price have triggered broader concerns about AI industry sustainability, though the company's major customer contracts may keep it afloat for now.
