Latest / Minds, Bodies, and Terawatts / CoreWeave's $50 Billion Debt Load Rattled the AI Boom This Week: 16% Bond Yields, a 'Yikes' From Musk, and a Plan to Borrow 'Unlimited' Money From Your Life Insurer
Transcript
- 0:00[Host] This is Minds, Bodies, and Terawatts, the show where the AI boom got repriced by a screenshot. Reuters reported this week that CoreWeave, the company renting Nvidia chips to Microsoft and OpenAI, is carrying about fifty billion dollars of debt and just watched the yield on its bonds hit sixteen percent.
- 0:17[Guest] Sixteen percent is what a lender charges when it is not sure it gets paid back, and this is a company that has never turned a profit. Yet the week did not start with an earnings report. It started with a chart on X.
- 0:31[Host] Whose chart?
- 0:32[Guest] The venture investor Chamath Palihapitiya posted a graph on Tuesday of CoreWeave's bond yields climbing, and asked whether the AI buildout was inflating a lending bubble. Elon Musk replied with one word. Yikes.
- 0:43[Host] And one word from Musk was enough to move the stock?
- 0:47[Guest] The stock fell fifteen and a half percent on Wednesday, and the selling spread to the other companies that borrow to rent out chips.
- 0:55[Host] Microsoft and OpenAI are the tenants. Those are good tenants, so why would anyone panic?
- 1:00[Guest] Nobody is questioning the tenants. Gavan Nolan at the ratings firm S and P Global told CNBC the demand is real, since the contracts are with the biggest cloud companies, and the open question is whether the cash actually arrives. CoreWeave plans to spend far more this year than it takes in, and analysts expect it to lose money doing it.
- 1:20[Host] So where does it get the next round of money?
- 1:23[Guest] Its co-founder, Brannin McBee, told the Financial Times the plan is to earn an investment-grade rating, the stamp that lets insurance companies lend, because insurers' capital, in his words, is unlimited.
- 1:34[Host] Insurance companies. As in, my life insurance?
- 1:36[Guest] As in the pool of money that pays out your policy or your annuity decades from now. He wants it lending against chips, and he said so the same week the bond market decided the chips were not safe enough.
- 1:50[Host] Hold on. If Microsoft is paying the rent, what exactly is risky here?
- 1:54[Guest] Look at the clocks. CoreWeave's own loan announcement from two months ago says the loan runs about five years, while the customer contracts backing it average about three. The money is borrowed for longer than the tenant has promised to stay.
- 2:08[Host] So it's a five-year mortgage on a tenant with a three-year lease. What happens when the lease runs out?
- 2:14[Guest] The building ages like a phone. Reuters points out that chips lose value every time Nvidia ships a new generation, so when that lease ends, CoreWeave has to re-rent older hardware at whatever price older hardware gets.
- 2:26[Host] The company must have an answer to this.
- 2:29[Guest] It has two, and the second one is stranger. Mike Intrator, the CEO, told staff in a memo that the market misunderstands and acts irrationally, and that its backlog of signed contracts, over a hundred billion dollars' worth, more than covers the debt. And Nvidia has signed a deal to buy any capacity CoreWeave cannot sell to anyone else.
- 2:49[Host] Wait. The chip company promised to rent the chips back if nobody else will?
- 2:53[Guest] The seller is the customer of last resort for its own customer. Jensen Huang, asked in Stockholm this week, said CoreWeave needs no backstop. The backstop is already signed.
- 3:03[Host] Okay, but I don't own CoreWeave. Why is this my problem?
- 3:07[Guest] Because it did not stay one company. Oracle, which also borrowed heavily for data centers, dropped almost nine percent in a single day, and the Nasdaq closed out its worst week since June. If you hold an index fund in a retirement account, this was your week too.
- 3:23[Host] Is this the bubble popping? Because that is what it sounds like.
- 3:27[Guest] Reuters is careful here, and I would be too. Nobody thinks demand for AI computing is collapsing. What changed is the timing. Apollo's economist Torsten Slok asked on CNBC what happens if the payoff arrives slower than everyone expected, and in this buildout every bill comes first, every payoff comes later, and the gap between them is where the interest lives.
- 3:47[Host] Let me push back. Railroads and the power grid were built on debt too, and those worked out.
- 3:53[Guest] They did, after the first owners went bust and someone bought the rails cheap. Gartner now predicts that by the end of the decade more than eighty percent of these chip-rental companies stop operating on their own. The rails get used either way. The question is who owns them on the other side.
- 4:11[Host] So what actually changed this week? The debt was all there last week too.
- 4:16[Guest] What changed is that someone put the number where everybody could see it. The debt, the yields, the loan that outlives its leases, all of it was sitting in filings. It took a screenshot and a one-word reply to turn it into a price.
- 4:30[Host] Then the truth was out there the whole time. What is the complaint?
- 4:35[Guest] That filed is not the same as seen. Patrick Deglon writes a law into Unscarcity called Truth Must Be Seen, and its test is not whether a risk was disclosed somewhere, but whether the people carrying it can read it. When the money is your life insurer's and your retirement account's, the terms belong in the open, not in a footnote a screenshot has to rescue. For more on who finances the machines and who gets to see the terms, head to unscarcity dot ai. The book is on Amazon, the audiobook is on Spotify. This has been Minds, Bodies, and Terawatts.