AI borrowing slowdown raises questions about investor exposure

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Megan McCarty Carino (1:04)

AI debt gets a reality check. From American Public Media, this is Marketplace Tech. I'm Megan McCarty Carino.

It's been a bit of a rocky week in tech markets, particularly for companies heavy on debt. We'll get into it on today's Marketplace Tech Bytes Week in Review. Plus, the king of streaming, Netflix, announces plans to cut around 6 percent of its staff. And on Wall Street, AI skills could be your ticket to a raise. But first, back to the jitters in the AI markets. Stocks slumped this week on fears of rising borrowing costs. Already Morgan Stanley data showed debt issuance for AI-related projects slowed last month, down significantly from a record high in June. The AI cloud computing provider CoreWeave, often pointed to as the face of risky AI financing, it saw its bonds fall to levels typically associated with financial distress. And its stock price took a hit, too.

So could this be a sign of a larger trend? Here to discuss is Jewel Burks Solomon, managing partner at Collab Capital.

Jewel Burks Solomon (2:23)

It's saying to me that lenders are overall becoming a bit more cautious, and asking some important key questions to make sure that all of the debt issuance that happened over the past year, that the infrastructure projects that companies are taking on actually can progress, actually can move past permitting and power needs, and all of these things to be able to be paid back.

And you see lenders just asking these harder questions and again, slowing down a bit on the highs that we saw back in June. We've seen a steady decline from that. But it's really about, does the infrastructure, does the underlying business actually going to be able to support all of this debt issuance?

Megan McCarty Carino (3:13)

Yeah. I think often when we've talked about the potential for an AI bubble bursting or even just something like a minor slowdown in the kind of AI build out, often I think it's been predicated on, is the technology going to deliver? And I think this moment kind of shows that there can be sort of macro backdrop that becomes more challenging, more challenging conditions on the ground for building data centers. All these things, aside from just like, how good is the technology, can affect kind of the future financial security of the industry and maybe the whole economy.

Jewel Burks Solomon (3:57)

Yeah, you're seeing the rubber meet the road in a real sense where companies are having to grapple with permitting. If anyone's ever done construction projects, you know that they never go according to plan. And so those are things that maybe the underlying underwriting didn't factor in. And so now we're seeing that reality come to pass and kind of meet the moment. So that's what companies are having to contend with and lenders are seeing that and slowing down a bit to make sure that there's a catch up period for these projects to actually take shape.

Megan McCarty Carino (4:33)

Going back to CoreWeave, this is a specialized AI cloud provider. You know, they bought up all the NVIDIA chips and they rent them out to AI companies for training and inference. And they have been sort of the poster child for, I guess, creative and potentially risky financing that could go wrong. This week, CoreWeave's bonds have fallen to levels typically associated with financial distress, the yields have climbed to 15%.

And as I noted, its stock has taken a hit too. The company's CEO has really pushed back on kind of the narrative and these concerns, calling the market's reaction irrational. And what do you think? How much is just kind of, you know, the market moving in tandem like it does on, you know, every new little piece of information? Or how much is this kind of a real moment?