CoreWeave's credit default swap prices imply a more than 60% chance of default within five years under standard market calculations. The five-year swaps reached a record 1,194.5 basis points on Thursday, according to ICE Data Services data reported by Bloomberg. Credit default swaps insure investors against a missed debt payment. CoreWeave shares fell 6.4% to $65.25 by 9:40 a.m. ET on Friday, putting the stock on track for a weekly loss of about 22%. A close at that level would be CoreWeave's lowest since May 2025.
CoreWeave's 9.75% notes due October 2031 slipped to 81.80 cents on the dollar on Friday, yielding 15.08%. The same bonds yielded about 12% two months ago. CoreWeave rents Nvidia-powered computing capacity to AI developers. CoreWeave buys chips and builds data centers before receiving rental income, borrowing to cover the gap. CoreWeave generated $679 million in operating cash flow in the second quarter while spending about $6.4 billion on equipment. CoreWeave's net interest expense more than doubled to $640 million.
The strategy of borrowing heavily to build quickly has backfired on CoreWeave as financing conditions have tightened. The 10-year Treasury yield rose 4 basis points to 5.12% on Friday. The 30-year Treasury yield rose 3 basis points to 5.45%. The two-year Treasury yield held at 4.76%. Wednesday's hotter-than-expected inflation report raised the odds of another Federal Reserve rate hike on Oct. 28. CoreWeave shares fell 15.5% that day.
Allianz chief investment officer Ludovic Subran said this week that the weakest data center bond issuers were struggling to survive. Rival neocloud Nebius Group is down about 20% this week. Bank of America chief investment strategist Michael Hartnett sees the pressure spreading to other participants in the AI financing sector. Hartnett's weekly Flow Show note favors reducing exposure to risk over the next three to four weeks. Hartnett cited 3% inflation-adjusted yields, the Nov. 3 midterm elections and weak trading in AI spenders and lenders.
CoreWeave's customers Amazon, Alphabet, Meta, Microsoft and Oracle are the AI spenders. Private credit firms, banks and bondholders are among the lenders. The customers' combined AI spending is expected to reach $807 billion this year. Consensus estimates compiled by Bank of America forecast that the customers' combined free cash flow will fall from $191 billion in 2025 to minus $63 billion this year as a result.
Hartnett said a downturn in semiconductor prices signals further tightening of AI credit. Hartnett expects an October Federal Reserve rate hike to restore credibility. Consumer prices have run above the Federal Reserve's 2% target for 66 consecutive months. Hartnett believes a hike could lower long-term Treasury yields by another 20 basis points and limit losses in risky assets. The unresolved question is which companies can afford to finance AI expansion at elevated interest rates.
CoreWeave Credit Default Swaps Signal Over 60% Default Risk
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Summary
On-chain data shows CoreWeave’s credit default swaps (CDS) now signal over 60% default risk in five years, hitting 1,194.5 basis points on Thursday. Shares dropped 6.4% to $65.25 on Friday, with a 22% weekly loss expected. The company’s 9.75% notes due 2031 fell to 81.80 cents, yielding 15.08%. Heavy borrowing for AI data centers has backfired as financing tightens. Bank of America’s Michael Hartnett warns of spreading risk appetite in the AI financing sector, citing weak trading in AI spenders and lenders.
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