// THE VERGE — INTELLIGENZA ARTIFICIALE
CoreWeave’s debt is becoming the whole AI industry’s problem
Posts from this topic will be added to your daily email digest and your homepage feed.
Posts from this topic will be added to your daily email digest and your homepage feed.
Posts from this topic will be added to your daily email digest and your homepage feed.
Posts from this author will be added to your daily email digest and your homepage feed.
Posts from this author will be added to your daily email digest and your homepage feed.
CoreWeave had a bad week last week. Its bonds slipped into distressed territory by a common definition — when investors demand 1,000 basis points more in yield than they’d get from government bonds. Last Tuesady Chamath “SPAC King” Palihapitiya noticed the distressed debt, and also asked whether the AI buildout was a private credit bubble. Its shares are down more than 20 percent since Tuesday’s close, which is kind of a lot! There even seemed to be some collateral damage in the market on other AI companies, too.
Now, I have also asked if the AI industry is a bubble, but when the SPAC King echoes concerns held by a lady whose ongoing question about AI is “How are we planning on affording this, champs?”, that’s a very different signal. When I say “yikes,” it’s one thing. When Elon Musk says it, that’s something else.
When you talk about wanting to tap into the enormous sums of money that insurers have, that’s the kind of thing that makes investors afraid that CoreWeave is going to borrow even more
To make things worse for CoreWeave, Brannin McBee, one of the company’s cofounders, told the Financial Times — also last week, on the same day as Palihapitiya’s post — that the company wants to have its debt be investment-grade, rather than junk, so that it can borrow from insurers, as their capital is, in his words, “unlimited.” This is not entirely unreasonable — earlier this year, CoreWeave secured its first investment-grade chip loan. But when you talk about wanting to tap into the enormous sums of money that insurers have, that’s the kind of thing that makes investors afraid that CoreWeave — already a massive debtor — is going to borrow even more.
“The problem is not that credit profiles have changed in the last year, it’s that we’ve got another year and a half of supply coming,” Bloomberg quoted John Yovanovic, co-head of leveraged finance at MetLife Investment Management, as saying.