CoreWeave’s Debt Scare Rattles AI Stocks, TSMC Posts Another Record Quarter

Zaid Admani (0:00)

Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Thursday, October 15th. In today's episode, we'll tell you why the stock market had its worst day since July, and why CoreWeave's bonds are flashing a warning sign about the AI spending boom. We'll also break down TSMC's monster quarter. Then stick around to the end of the show to find out why Berkshire Hathaway is investing in a company that buys up washed up internet brands. We got a great show for you today.

Let's go.

Stocks got smoked on Wednesday. The S&P 500 fell by 1.1% and the NASDAQ tanked by 1.9%. You know, it had been a while since the S&P 500 fell by more than 1%. In fact, it was the worst day for stocks since July. And I should mention that the Russell 2000, which tracks small cap stocks, that index fell by 2% yesterday as well and is now down 10% from its highs from earlier this year. You know, yesterday's sell off was triggered by a couple of things. The first being the hot inflation report in the morning. We covered that report on yesterday's show. So go check that out if you missed it. With inflation creeping back up again, there's concerns that the Fed might have to raise interest rates at the October meeting. But that wasn't the only thing. By the afternoon, the tech sell off really took off as investors started having doubts about the AI trade again, especially for companies that have borrowed a ton of money. Now Oracle was down 9%, Dell was down 11%, and CoreWeave was down 15%. We're gonna talk more about CoreWeave in a bit because their bonds are essentially trading at junk status right now. And you know, the overall semiconductor index has dropped for seven straight sessions now and lost over 10% of its value during that time. So yeah, this is just one of those weeks where investors are suddenly concerned that all this AI investment might not actually pay off. Now, I feel like this happens at least once a quarter. We saw it happen back in July. Now, there was a report from Barclays that said there hasn't been a meaningful acceleration in enterprise AI spending. According to their analysis, companies are still only putting about 5% of their IT budgets towards AI. That's actually one reason why Dell stock took a big hit yesterday. You know, Barclays says that one of the reasons that Dell, HPE and others are seeing a surge in revenue is because they're just passing along the higher equipment costs like memory to their customers, but they're not actually selling more equipment, which yeah, is kind of concerning. So we'll have to see if this is just another short term AI panic like we saw back in July, or is this the start of an actual downturn? I mean, the sell off is getting worse this morning. I'm seeing a ton of red, especially in the tech sector. It also doesn't help that we get another hot inflation report this morning. The September PPI just came out, which measures inflation at the wholesale level, and it jumped 1.3% month over month, and 6.3% year over year, which is the largest gain since 2022 When you start hearing the word 2022 and inflation in the same sentence, that's not a good sign. So I'm really curious to see what the Fed is going to do at their meeting at the end of the month. The market can't seem to make up their mind. I mean, the odds of a rate hike jumped up 50% yesterday following the CPI report, but now the odds are down to 28% as of this morning on the prediction market on public. So we'll see what ends up happening. I mean, there's a lot going on in the markets right now, so definitely get subscribed to the podcast if you haven't already and tune in every day to stay in the loop.

Let's run through some headlines, starting with CoreWeave. CoreWeave stock has been in freefall this week, down more than 25% because of concerns that they might not be able to pay off their debts. Now quick refresher on CoreWeave, they are a Neo cloud company and their business model is essentially building AI data centers, packing them with NVIDIA chips and renting that computing capacity to companies. Some of their customers include Microsoft and OpenAI. The concern with CoreWeave right now has to do with their debt load. See, unlike the tech giants that have massive cash flows from their existing businesses to fund their AI spending, CoreWeave has to borrow tens of billions of dollars to build out data centers and buy NVIDIA chips. And right now, bond investors for their existing debt are getting nervous. Bloomberg reported that their bonds due in 2032 were trading around 78 cents on the dollar, with yields around 15%.