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CoreWeave Bonds Near 15% Flash a Warning on AI Debt · DX Today | No-Hype Podcast & News About AI & DX

• 0:00
  SPEAKER_00: Welcome to the DX Today Podcast, your daily deep dive into the AAA ecosystem.
• 0:04
  SPEAKER_00: I'm Chris, and joining me as always is Laura.
• 0:07
  SPEAKER_01: Hey Chris, and hello everybody.
• 0:09
  SPEAKER_01: Today we are talking about money, specifically borrowed money, because one of the most important companies in the AI cloud business just had a very rough day in the bond market.
• 0:18
  SPEAKER_00: Right, this is Core Weave, and I want to set it up for people who do not follow credit markets, because most of us only notice when a stock price falls, not when a bond starts flashing warning lights.
• 0:28
  SPEAKER_01: So here's the headline.
• 0:30
  SPEAKER_01: On Wednesday, October 14th, Core Weave shares fell about 16%, and some of its bonds traded at yields close to 15%, which is the kind of number you usually associate with companies in real trouble.
• 0:42
  SPEAKER_00: Okay, before we panic, explain what a 15% yield actually means.
• 0:47
  SPEAKER_00: Because I think a lot of listeners hear a bigger number and assume that sounds like a good deal for investors.
• 0:52
  SPEAKER_01: Great question.
• 0:53
  SPEAKER_01: Coreweave sold notes in June that pay a coupon of 9.58% and mature in 2032.
• 0:59
  SPEAKER_01: When the price of that bond drops to around 79.5 cents on the dollar, the effective yield jumps to roughly 15%.
• 1:07
  SPEAKER_00: So the company still pays the same interest it promised, but new buyers are only willing to pay about 80 cents for a dollar of debt, which tells you how nervous lenders have become about getting paid back.
• 1:18
  SPEAKER_01: Exactly.
• 1:19
  SPEAKER_01: And the market is basically saying it now wants distressed level compensation to hold this paper.
• 1:24
  SPEAKER_01: Another core weave note due in 2031 was trading around 14.9% as well.
• 1:30
  SPEAKER_01: So it was not one odd trade.
• 1:32
  SPEAKER_00: Let's back up for people who have never heard of Core Weave.
• 1:35
  SPEAKER_00: What does this company actually do?
• 1:37
  SPEAKER_00: And why does it matter so much to the broader artificial intelligence story we cover every day?
• 1:43
  SPEAKER_01: Core Weave rents out computing power.
• 1:45
  SPEAKER_01: It buys enormous numbers of NVIDIA graphics processors, puts them in data centers, and leases that capacity to big AI developers and tech companies who need to train and run models but do not want to build everything themselves.
• 1:58
  SPEAKER_00: And it has a pretty colorful origin story, right?
• 2:00
  SPEAKER_00: I remember this company did not start life as some polished enterprise cloud provider with a fancy corporate pedigree behind it.
• 2:07
  SPEAKER_01: Not at all.
• 2:08
  SPEAKER_01: It started in 2017 as a crypto mining operation, pivoted to AI Cloud, and listed on the Nasdaq in March 2025 at$40 a share.
• 2:17
  SPEAKER_01: Nvidia is both its key supplier and one of its investors, which is a fascinating loop.
• 2:22
  SPEAKER_00: So where did the stock close on Wednesday?
• 2:24
  SPEAKER_00: And is this a company that has given back all of its gains since going public?
• 2:29
  SPEAKER_00: Or is the picture a little more nuanced than the headlines suggest?
• 2:33
  SPEAKER_01: It closed somewhere around$65 to$66, so still above the initial offering price.
• 2:39
  SPEAKER_01: That is the nuance.
• 2:40
  SPEAKER_01: The stock is not at zero, but the bond market is telling a much more anxious story than the equity market did a few months ago.
• 2:47
  SPEAKER_00: Let me push back a little here because the chief executive, Mike Intrator, called this reaction irrational.
• 2:52
  SPEAKER_00: Is there a reasonable case that the market is simply overreacting to a scary macro day?
• 2:57
  SPEAKER_01: There is a real case.
• 2:58
  SPEAKER_01: In an internal memo, Intrator argued that the contracted backlog more than covers the company's debt obligations.
• 3:05
  SPEAKER_01: And that backlog is huge.
• 3:07
  SPEAKER_01: About$104 billion at the end of the second quarter, up from roughly$99 billion the quarter before.
• 3:14
  SPEAKER_00: $104 billion of contracted future revenue sounds like the kind of number that should make any lender sleep well at night.
• 3:20
  SPEAKER_00: So why are bond buyers acting as if it barely matters?
• 3:23
  SPEAKER_01: Because a backlog is a promise, not cash in the bank, and it stretches over many years.
• 3:28
  SPEAKER_01: Meanwhile, the debt is very real right now.
• 3:30
  SPEAKER_01: Core Weave carried about$35.6 billion of debt principal at the end of June, according to Forbes contributor Jim Osman.
• 3:38
  SPEAKER_00: $35 billion of debt for a company that was mining crypto less than a decade ago.
• 3:43
  SPEAKER_00: How much of that comes due soon?
• 3:45
  SPEAKER_00: Because that is usually where the real pressure shows up for any borrower.
• 3:48
  SPEAKER_01: About$4.4 billion is due over the rest of this year, and about$6.2 billion in 2027.
• 3:55
  SPEAKER_01: On the other side, they had around$5.5 billion in cash and roughly$15.6 billion in total liquidity, including credit lines they can draw on.
• 4:04
  SPEAKER_00: So they are not about to run out of money next week.
• 4:07
  SPEAKER_00: Which is important to say clearly, because I think a lot of social media takes jumped straight to the word collapse without looking at those liquidity figures.
• 4:15
  SPEAKER_01: Right.
• 4:15
  SPEAKER_01: And Osman says the same thing.
• 4:17
  SPEAKER_01: He does not see these bonds as proof of an imminent collapse.
• 4:20
  SPEAKER_01: His argument is subtler and honestly more interesting.
• 4:24
  SPEAKER_01: The question is not whether AI demand is real, it is how much of that growth actually reaches shareholders after the lenders get paid.
• 4:31
  SPEAKER_00: Walk me through the income statement then, because I suspect the interest bill is the villain of this whole story.
• 4:37
  SPEAKER_00: And I want to hear the actual numbers rather than vague talk about debt.
• 4:41
  SPEAKER_01: Second quarter revenue more than doubled to about$2.58 billion, up 112%.
• 4:47
  SPEAKER_01: Great.
• 4:48
  SPEAKER_01: But the net loss was$626 million, and net interest expense rose 140% to around$640 million.
• 4:56
  SPEAKER_01: Hold on.
• 4:57
  SPEAKER_00: So interest alone is eating roughly a quarter of all the revenue coming through the door?
• 5:02
  SPEAKER_00: That is a staggering ratio for a business that is supposed to be riding the biggest technology wave of our lifetimes.
• 5:08
  SPEAKER_01: Almost a quarter, yes.
• 5:09
  SPEAKER_01: And the cost of revenue rose about 181%, while technology and infrastructure expenses rose about 125%.
• 5:18
  SPEAKER_01: Revenue is sprinting, but costs in borrowing are sprinting even faster, which is exactly what makes credit investors nervous.
• 5:25
  SPEAKER_00: Now, Wednesday was not just a core weave story, right?
• 5:28
  SPEAKER_00: My understanding is that the whole AI infrastructure trade got hit.
• 5:32
  SPEAKER_00: And there was a broader macro trigger that set things off across the market.
• 5:36
  SPEAKER_01: Yes, hotter inflation.
• 5:37
  SPEAKER_01: September inflation came in at 3.7%, up from 3.4 in August.
• 5:43
  SPEAKER_01: That revived expectations of a tighter Federal Reserve, and futures were pricing roughly a 94% chance of a rate hike in December.
• 5:51
  SPEAKER_01: The 10-year treasury yield is climbing toward 5.3%.
• 5:55
  SPEAKER_00: And when the risk-free rate climbs like that, every borrower who depends on outside capital suddenly looks a lot more expensive to fund, which hits a company like Coreweave much harder than a cash-rich giant.
• 6:06
  SPEAKER_01: Exactly.
• 6:06
  SPEAKER_01: Oracle closed down nearly 9% that day.
• 6:09
  SPEAKER_01: Nebius fell about 10%, and Dell dropped roughly 11%.
• 6:14
  SPEAKER_01: So the whole neighborhood of AI infrastructure names got repriced, with CoreWeave taking the sharpest hit because it is the most leveraged pure play.
• 6:22
  SPEAKER_00: Let's talk about the bigger borrowing picture because I have a feeling Core Weave is just the most visible example of something the entire industry is doing at the same time right now.
• 6:31
  SPEAKER_01: You are right.
• 6:32
  SPEAKER_01: According to LSEG data reported by CNBC, Alphabet, Amazon, Meta, and Oracle issued more than$228 billion of bonds in 2026 through October 13th.
• 6:44
  SPEAKER_01: That is more than double what they issued in all of 2025.
• 6:47
  SPEAKER_00: More than double in under 10 months.
• 6:50
  SPEAKER_00: And what are the analysts projecting for total spending on all this infrastructure?
• 6:55
  SPEAKER_00: Because the scale here is honestly hard to wrap my head around.
• 6:58
  SPEAKER_01: JP Morgan estimates hyperscaler spending at around$800 billion this year, rising above$1 trillion a year by 2027.
• 7:07
  SPEAKER_01: So we are talking about a build-out that rivals national infrastructure programs, and a meaningful part of it is being financed with debt.
• 7:14
  SPEAKER_00: But here's where I want to play devil's advocate.
• 7:18
  SPEAKER_00: Microsoft, Meta, Alphabet, and Amazon can pay for most of this out of their own cash flow.
• 7:24
  SPEAKER_00: Is it fair to lump them in with Core Weave just because they are all issuing bonds?
• 7:28
  SPEAKER_01: That is the key distinction Osman makes.
• 7:30
  SPEAKER_01: The giants fund much of their build-out from existing profits, so borrowing is a choice.
• 7:35
  SPEAKER_01: Core Weave depends well more on outside capital.
• 7:38
  SPEAKER_01: So when rates rise, its whole model gets more expensive.
• 7:41
  SPEAKER_01: SP rates Core Weave B, which is below investment grade.
• 7:45
  SPEAKER_00: Let's dig into the collateral question because I find it genuinely fascinating that the loans are partly secured by graphics chips.
• 7:52
  SPEAKER_00: What happens to a loan when the thing backing it might be obsolete in a few years?
• 7:56
  SPEAKER_01: This is my favorite nerdy angle of the whole story.
• 7:59
  SPEAKER_01: Writers reported that some lenders question the long-term value of NVIDIA processors.
• 8:04
  SPEAKER_01: Nvidia says its chips can stay useful for about a decade, while some credit investors assume only three to four years of depreciation.
• 8:11
  SPEAKER_00: That is a massive gap.
• 8:13
  SPEAKER_00: If the chipmaker says 10 years and the lender says three or four, then someone has priced the collateral very wrong.
• 8:20
  SPEAKER_00: And the answer determines whether these loans are safe or quietly dangerous.
• 8:24
  SPEAKER_01: And the hardware cycle keeps speeding up.
• 8:26
  SPEAKER_01: Every new generation makes older chips less competitive for frontier training, even if they still work perfectly for running smaller models.
• 8:34
  SPEAKER_01: Economic life and physical life are not the same thing, and lenders are starting to price that difference.
• 8:40
  SPEAKER_00: What about the customers themselves?
• 8:42
  SPEAKER_00: A backlog is only as good as the people who signed it.
• 8:46
  SPEAKER_00: So who is actually on the other side of that$104 billion number?
• 8:50
  SPEAKER_01: Concentration is a real issue.
• 8:52
  SPEAKER_01: In the second quarter, the three largest customers accounted for roughly 36%, 26%, and 10% of revenue.
• 9:00
  SPEAKER_01: And there is an$8.5 billion financing arrangement backed specifically by a contract with Meta.
• 9:05
  SPEAKER_00: So a loan backed by Meta, which prints money, looks very different from a loan backed by a smaller AI lab that might need to raise another round just to keep paying its cloud bill next year.
• 9:15
  SPEAKER_01: Exactly that.
• 9:16
  SPEAKER_01: Customer quality is the hidden variable.
• 9:19
  SPEAKER_01: If the contracts are with cash-rich giants, lenders relax.
• 9:22
  SPEAKER_01: If they are with startups burning capital, every rate hike makes those contracts look riskier.
• 9:27
  SPEAKER_01: And that risk flows straight back to Core Weave's cost of borrowing.
• 9:31
  SPEAKER_00: Is Core Weave doing anything to fix its funding costs?
• 9:34
  SPEAKER_00: Or is it just riding out the storm and hoping that rates come back down sometime next year?
• 9:38
  SPEAKER_01: The Financial Times reported that Core Weave is seeking financing from life insurers, which is interesting because insurers have long-dated liabilities and want steady contracted cash flows.
• 9:49
  SPEAKER_01: If Core Weave can secure cheaper investment grade style funding against its best contracts, the economics improve a lot.
• 9:55
  SPEAKER_00: And to be fair to Intrator, the company did keep signing business.
• 9:59
  SPEAKER_00: Do we know anything about new commitments since that second quarter backlog figure was reported earlier this year?
• 10:04
  SPEAKER_01: We do.
• 10:05
  SPEAKER_01: Reports say Core Weave secured more than$25 billion of net new customer commitments in the third quarter.
• 10:12
  SPEAKER_01: So demand is clearly not the problem here.
• 10:14
  SPEAKER_01: The tension is between strong demand and expensive money, and both things are true at once.
• 10:19
  SPEAKER_00: Let me try a simple analogy for listeners.
• 10:22
  SPEAKER_00: It is like a landlord with a waiting list of tenants, but who financed every building on a credit card.
• 10:27
  SPEAKER_00: The rent is coming, but the interest is crushing.
• 10:30
  SPEAKER_01: I love that, and I would add one twist.
• 10:33
  SPEAKER_01: The buildings themselves might lose value faster than expected because a newer building opens across the street every 18 months.
• 10:40
  SPEAKER_01: That is the chip depreciation problem layered on top of the credit card problem.
• 10:44
  SPEAKER_00: So what does this mean for the rest of the AI ecosystem?
• 10:48
  SPEAKER_00: If you are a startup that rents compute from a company like this, should you be worried about your supplier, or is that overeading one bad trading day?
• 10:56
  SPEAKER_01: I would not panic, but I would diversify.
• 10:59
  SPEAKER_01: If your whole product depends on one Neo Cloud provider, a funding squeeze there could mean slower capacity expansion or tougher pricing.
• 11:07
  SPEAKER_01: Smart teams are already spreading workloads across multiple providers to reduce exactly that kind of concentration risk.
• 11:13
  SPEAKER_00: And for investors listening, the signal seems to be that the bond market often notices stress before the stock market does.
• 11:20
  SPEAKER_00: So it might be worth watching credit spreads, not just share prices, when you evaluate these companies.
• 11:26
  SPEAKER_01: Absolutely.
• 11:27
  SPEAKER_01: Osman framed it perfectly with one question: How much of that money will ultimately reach shareholders?
• 11:33
  SPEAKER_01: Watch the interest bill, watch refinancing terms, and watch the returns on each new data center.
• 11:38
  SPEAKER_01: Those three numbers will tell you more than any headline about AI hype.
• 11:43
  SPEAKER_00: My takeaway is that the AI boom is real, but it is increasingly a financing story.
• 11:48
  SPEAKER_00: And the winners may be decided by who has the cheapest capital rather than who has the coolest model or the biggest press release.
• 11:54
  SPEAKER_01: And mine is that a 15% yield is not a death sentence.
• 11:57
  SPEAKER_01: It is a price tag on uncertainty.
• 11:59
  SPEAKER_01: If Core Weave can turn that$104 billion backlog into cash without drowning in interest, today will look like a buying opportunity.
• 12:07
  SPEAKER_01: If not, it will look like the first warning.
• 12:10
  SPEAKER_00: That's all for today's episode of the DX Today podcast.
• 12:13
  SPEAKER_00: Thanks for listening, and we'll see you next time.