CoreWeave, one of the riskier stocks in the AI basket, was taking a dive today after a chart of its bond yields went viral on X, sparking concerns about its long-term ability to remain solvent.
As of 1:00 p.m., the stock was down 14.4% on the news, dragging down peers like Nebius, Oracle, and IREN with it.
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Rising rates are testing CoreWeave
CoreWeave's business model relies on borrowing money to spend on chips and data centers to then rent out that computing capacity. The company already has $35 billion in debt, and its interest expense is driving steep losses.
Investor Chamath Palihapitiya posted a chart on X yesterday, showing that CoreWeave's bond yield had reached a new all-time high at 15%, up from 9% this summer, as bond yields in general have risen. Palihapitiya suggested a private credit bubble could be forming, and Elon Musk replied "Yikes" to the post.
The 15% rate is just one loan, but the post did spark some alarm about neocloud stocks generally, as they're likely to face pressure if rates continue to go up.
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What's next for CoreWeave
After Nvidia had to step into support its IPO, CoreWeave soared in its first months on the market, but the stock is now trading near a 52-week low even as the broader AI sector has continued to rise.
If interest rates continue to move higher, it will be even harder for CoreWeave to turn a profit, and its debt could eventually unravel. Thus far, the company has continued to post strong top-line growth, and it's expected to deliver 159% revenue growth to $3.54 billion in its third-quarter earnings report.
That shows CoreWeave doesn't have a demand problem, but the concerns about its debt are rational. Expect the pressure on the stock to continue unless rates ease or the company makes progress on the bottom line.
