CoreWeave Is Imploding — And Taking AI Stocks Down With It

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Okay, what else is happening? AI cloud company CoreWeave might be on its last legs. On Tuesday, the yield on one of its bonds touched 15% reaching a new record high. Those bonds come due in 2032

Then the stock tanked on fears that the company wouldn't be able to pay back its massive amounts of debt. Yesterday, it closed down 16%.

CoreWeave brought down other AI infrastructure companies as well, including Oracle, Nebius, Broadcom, Nvidia, TSMC and Micron, all of which ended the day in the red. The stakes are quite high for CoreWeave. As of the end of June, the company had about $52 billion in debt and lease obligations, up from roughly $15 billion a year earlier. Last quarter, it paid $640 million in interest, more than double what it paid this time last year. In yesterday's episode, our guest, Gil Luria of DA Davidson warned us that if the AI trade falters, CoreWeave's equity could go, quote, to zero. So is that going to happen? Here to break this down, we're speaking with Paul Kedrosky, Managing Partner at SK Ventures. Paul, great to see you. Thank you for joining us. CoreWeave has been taken to the cleaners today, along with a lot of other heavily debt-laden AI names. So Nebius is down 11 percent, Iron is down 12 percent, Oracle is down almost 9 percent, or at least that was the closing price.

Let's just start with your general reactions. What is happening here? What are the markets telling us?

Paul Kedrosky (4:19)

The funny thing is, this has taken so long to happen. I mean, the situation at CoreWeave hasn't really changed dramatically from eight months ago. It's just that it takes people a long time to notice. And the situation, of course, is that it's among the most indebted of the Neo clouds and has, as you pointed out, an incredibly high debt burden. And that debt burden either has to be refinanced or has to be paid for by selling tokens to people who rent space in the Neo clouds. And all of those get more difficult when you have exactly this kind of debt spiral going on, no different than the US seeing the 10 year spiking. And then all of a sudden that has an effect on the deficit.

As people look forward with the increasing cost of CoreWeave's debt, as the spreads blow out, they look forward and say, wait a minute, that has implications for the refinancing in future raises. And so as a result, that becomes the same sort of debt death spiral that you've seen in some sovereigns. And it's just playing out. It took a long time to play out inside of CoreWeave, but it's finally happening. And there's a whole bunch of reasons why probably among the largest is that in the same way that fundraising among the AI CapEx fundraising has squeezed sort of the mid duration treasuries, the 10 years, for example, which is incredible and has never really happened before. The reverse is also true, that as the 10 year and equivalent duration treasuries become more attractive, it becomes much more difficult for these highly indebted Neo clouds to raise money. So this perverse relationship goes in both directions. And the net effect is both of them have, you know, much more consequential debt burdens and then interest rates going forward. The difficulty for a Neo cloud like CoreWeave is unlike the United States, it doesn't have a treasury department and can't print money in the basement.