Oct 14 (Reuters) - AI cloud firm CoreWeave's shares and bonds slumped further on Thursday despite CEO assurances about its strong deal backlog, in one of the deepest crises of investor confidence yet in an AI build-out increasingly fueled by borrowing.
The company's stock fell 6% in premarket trading after a more than 15% drop on Wednesday, among the biggest decliners in a global tech stocks rout. The yield on its April-issued bonds due 2031 surged past 16%, above the level that typically signals
distress, drawing a "yikes" from Elon Musk on social media.
Loss-making CoreWeave, which has around $50 billion in debt, has in recent days become the focus of growing doubts about whether the tech industry can sustain a data center boom that is saddling newer cloud firms with heavy borrowing and straining cash flow even at giants such as Google-owner Alphabet.
The cost of insuring the Nvidia-backed company's debt against default has climbed to around 1,000 basis points, a level that implies a nearly 63% chance the company defaults within five years, up from about 30% a year ago.
CoreWeave leads a group of newer cloud providers known as neoclouds, which rent out computing power from tight in supply and costly Nvidia processors to meet the tech industry's soaring demand, often leaning on borrowing to fund the chip purchases.
Critics say that leaves such firms exposed to any cooling in AI demand, while the chips lose value as newer generations arrive, forcing another round of heavy spending to replace them.
CoreWeave, which in August raised its annual capital spending forecast by $4 billion to between $35 billion and $39 billion, is expected to post revenue of nearly $13 billion this year and a loss of $2.13 billion, according to analysts' estimates.
Growing worries about the build-out, on which US tech giants are expected to spend more than $700 billion this year, have in recent days rippled through the stocks that have been the market's biggest winners since ChatGPT's November 2022 launch.
The Philadelphia Semiconductor Index, a closely watched gauge of semiconductor stocks, has erased over $1.6 trillion in market value in an 11.6% slide over the past six sessions. The tech-heavy Nasdaq has declined more than 3% in the period.
On Thursday, tech shares fell across Asia, Europe and the US, dragging broader markets lower on fears that high and rising interest rates could bring a reckoning for the sector.
CoreWeave's neocloud rivals such as Nebius, Applied Digital and Iren fell between 3.2% and 5%.
'UNLIMITED' POOLS OF CAPITAL
The CoreWeave sell-off came as its co-founder Brannin McBee told the Financial Times the company was seeking an investment-grade rating that would open the door to "unlimited" capital.
On the same day, research firm Gartner said that about 80% of neoclouds could shut down by 2030, and that more than $3.5 trillion of AI infrastructure spending could face impairment if AI providers keep up their current pace of investment.
"In 2026, AI providers are expected to spend nearly $1 trillion on AI infrastructure, and are forecast to invest an additional $6 trillion between 2027 and 2030,” said Will Sommer, analyst at Gartner.
"However, our research indicates enterprise and consumer AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures during this period.”
CoreWeave CEO Mike Intrator pushed back on the concerns in an internal memo on Wednesday seen by Reuters, telling employees the company's deal backlog more than covers its debt obligations and that markets can sometimes "misunderstand and act irrationally."
(Reporting by Aditya Soni, Anhata Rooprai and Shashwat Chauhan in Bengaluru)
