CoreWeave's credit risk has reached a record high: markets estimate the probability of default at 60%

The credit risk of cloud provider CoreWeave—one of whose largest shareholders is Nvidia—reached a record high on October 15, according to Bloomberg. The market now estimates the probability of the company defaulting within the next five years at more than 60%. Investors were alarmed by the company’s plans to improve its credit rating in order to expand its ability to raise new debt, the agency explains.

The cost of a five-year credit default swap on the debt of AI cloud computing provider CoreWeave rose by 74.5 basis points on Thursday—to 1,194.5 basis points, Bloomberg reported, citing data from ICE Data Services. This is the highest intraday level on record. Credit default swap prices now imply a probability of more than 60% that CoreWeave will default within the next five years.

Some of the company's bonds fell in price on the U.S. high-yield debt market. CoreWeave bonds with a 9% coupon and maturing in 2031 lost about 2.5 cents per $1 face value, falling to 80.75 cents. Their yield rose to 15.3%, according to Trace data. Bonds with a 9.25% coupon and maturing in 2030 fell by about 0.75 cents to 86 cents, while their yield rose to 14.3%.

At the same time, some CoreWeave issues, on the other hand, rose slightly: bonds with a 9.75% coupon and maturing in 2031 gained 0.125 cents, to 80.625 cents per $1 face value.

Pressure on debt securities intensified after CoreWeave co-founder Branning McBee stated in an interview with the Financial Times published on October 14 that the company aims to obtain an investment-grade credit rating and secure the ability to raise “unlimited” amounts of financing.

A CoreWeave spokesperson did not respond to Bloomberg’s request for comment. The company’s stock was volatile on Thursday: at its intraday low, it was down 9.5%, but then recovered its losses and rose by about 2.3%. The day before , it had plummeted 17%.

The AI funding boom is beginning to worry investors in the debt market and is leading to a reassessment of the risks associated with some of the largest technology companies, according to Bloomberg. This is reflected in a sharp rise in the cost of credit insurance, increased volatility, and a deterioration in the performance of debt instruments. CoreWeave is drawing particular attention, as it was one of the first players in this market and relied heavily on high-yield bonds to finance large-scale infrastructure construction.

Investor concerns about the sustainability of AI spending and rising costs are putting pressure on both the U.S. credit market and tech stocks on Thursday: they fell at the start of trading on October 15. However, the Nasdaq Composite technology index subsequently recovered and, at the time of this writing, was down only 0.1%.

On Wednesday, venture capitalist Chamat Palihapitiya posted a chart on the social media platform X showing that the yield on CoreWeave bonds maturing in 2032 had reached 15%. ““Isn’t the expansion of AI infrastructure creating a bubble in the private lending market?” the investor wrote. The post caught the attention of X’s owner, the world’s richest man, Elon Musk, who described it as “crazy.”

CoreWeave CEO Mike Intrator called the market's behavior "irrational" in a memo to employees and emphasized that he remains confident in the company's prospects, Bloomberg reported.

The day before, investors were selling off not only CoreWeave shares but also those of other AI cloud computing providers. The sell-off was preceded by a report from the research firm Gartner. Its analysts suggested that more than 80% of non-cloud providers will not be able to survive as independent companies after 2030 if spending on AI infrastructure continues to grow at a rapid pace.

This article was AI-translated and verified by a human editor