Billions of orders cannot support a borrowing cost of 15% – The business logic of AI infrastructure is being directly tested by the capital market.

CoreWeave's stock price tumbled by about 15% on Wednesday, and continued to fall by nearly 6% after the market closed. Bond prices entered a difficult range, with credit default swap pricing indicating that the probability of default within five years has exceeded 50%. At the same time, stocks related to infrastructure such as Oracle, Nebius, Dell, and AI all saw declines, and pressure in the high-yield bond market also increased accordingly.

CEO Michael Intrator immediately issued an internal memo to employees, stating that the company had over $104.2 billion in backlogged orders, "more than sufficient to cover all debt obligations," and attributed the market sell-off to "misunderstandings and irrational behavior." However, this attempt at reassurance failed to stop the decline.

Backlogged orders do not equate to cash; fulfilling these orders requires continuous investment in GPU, data centers, and power infrastructure. What the market truly cares about is the timing of revenue realization, project profit margins, and whether cash flow can cover interest and capital expenditures. In an environment where financing costs are soaring, the CoreWeave model of "borrowing to build first and then realizing contract revenues" still seems economically viable.

D.A. Davidson Analyst Gil Luria said, "If CoreWeave borrows at a cost of 9% but can only obtain a maximum return of 5%, then no matter how much they expand their scale, it makes no sense: they are destroying value with every step they take."

Bonds fall into a troubled zone, default insurance premiums hit new highs, Musk: Oh no!

According to Bloomberg, the $2.75 billion bond issued by CoreWeave in April this year with a coupon rate of 9.75% was traded at a par value of 81 cents during trading on Wednesday, with a yield exceeding 15%. The two unsecured bonds maturing in 2031 and 2032 have both fallen below 80 cents – a level that is generally regarded in the market as a threshold indicating that the borrower is in financial distress. Analysts said, "There's no way to refinance at a rate of 15%."

According to Dow Jones Market Data, the cost of the five-year credit default swap for CoreWeave rose to around 881 basis points on Monday, a significant increase from 547 basis points at the end of June. Bloomberg cited this data, stating that this indicates that the market's pricing suggests a default probability within five years of over 50%.

Elon Musk shared the relevant report on their social media platform, only leaving a "Oh my ( yikes )" to express their shock.

AI The infrastructure sector is under overall pressure, with expectations of interest rate hikes acting as the trigger.

CoreWeave's stock price closed down by about 15.46% on the same day, and the cumulative decline this month has approached a quarter. This wave of selling is not isolated. On Wednesday of the same week, Nebius fell by about 15.1%, while data center operators Applied Digital and IREN declined by about 8.8% and 9.9% respectively, Oracle fell by about 7.2%, and Dell and HPE fell by about 10.3% and 6.4% respectively.

Barclays downgraded the ratings of Dell and HPE from "overweight" to "neutral" on the same day, stating: "The valuation has already moved too far ahead. The cost of commodities once drove up revenue, but we have not yet seen any substantial AI turning points."

The direct trigger that overwhelmed emotions was the inflation data. The consumer price index released on that day exceeded expectations, which led to an increase in market bets that the Federal Reserve would raise interest rates again this month. The yield on 10-year U.S. Treasury bonds rose to around 5.19%, and the yield on 2-year bonds jumped by 7.2 basis points in a single day.

Bokeh Capital Partners Chief Investment Officer Kim Forrest stated: "Investors are questioning whether the large-scale construction of AI infrastructure can indeed generate the returns that were previously anticipated."

CEO issues a memorandum, stating that whether the tens of billions of orders can be fulfilled is the key.

Intrator wrote in an internal memo: 'When building a new type of technology company, the market sometimes misunderstands and does not act rationally. We are full of confidence in our business model, our customers, the excellence of our execution quality, and the strict discipline of the financial engine we have established.'

The company also disclosed that as of the second quarter, the backlog of revenue orders for CoreWeave reached $104.2 billion, a further increase from $99.4 billion in the first quarter; in the third quarter, there were new net customer commitments exceeding $25 billion.

CoreWeave stated in the declaration: 'We are confident about the backlog of orders, which is sufficient to cover all our debt obligations. We are also confident about our financing situation.'

However, Osterweis Capital Management, the bond portfolio manager, indicated to MarketWatch that CoreWeave is "a barometer of AI's sentiment." The sale of bonds by CoreWeave "caused some instability in the market today," raising concerns that the company has borrowed too much and too quickly, and may face the risk of being unable to continue financing to support its AI expansion plans.

Analyst: Borrowing at 9%, earning 5%, the larger the scale, the more losses incurred

D.A. Davidson The head of scientific research, Gil Luria, directly pointed out the issues in an interview with Bloomberg TV.

They have already lost the ability to borrow at a rate of 9% – this is a very concerning factor. If CoreWeave borrows at a cost of 9% but can only obtain a maximum return of 5%, then no matter how much they expand their scale, it makes no sense: with each step they take, they are destroying their value. This is particularly true for new cloud service providers that rely entirely on debt financing to build data centers. The more leverage we use to build data centers, the more risk we introduce into the system.

Luria previously referred to CoreWeave as a "subprime mortgage portfolio" in the AI sector. He pointed out that there were early warning signs in CoreWeave's borrowing activities in July – leveraged loans were sold at higher interest rates than expected, which, according to Bloomberg's calculations, resulted in an additional annual interest cost of about $30 million.

CoreWeave, co-founder with Brannin McBee, previously stated in an interview with the UK's Financial Times that the company's goal is to continuously obtain an investment-grade rating for its debt secured by chips, and ultimately to raise the company's overall rating, thereby accessing "all the funds in the insurance fund pool."

But Luria believes that this investment-grade dream is hitting reality.

The capital market will self-regulate, and we will not continue to lend at such interest rates. The amount of venture capital available for building data centers is limited; we hope this will allow growth to maintain a sustainable pace until 2030.

Credit cracks are spreading outward, sounding the alarm in the high-yield bond market.

Some bonds related to CoreWeave also showed weakness, including the bonds of Galaxy Digital Inc and Core Scientific Inc.

An analyst from S& P Global Ratings wrote in the rating report for Galaxy Digital bonds in July that a key expectation was that CoreWeave would be able to fulfill its leasing obligations "in the foreseeable future." However, they also pointed out, "Given that the duration of its customer contracts is shorter than its leasing commitments to Galaxy Digital, if the demand for AI services falls short of expectations and there is an oversupply of industry infrastructure relative to demand, CoreWeave may face challenges in fulfilling these leasing obligations."

Edward Jones Senior Fixed Income Analyst Brian Therien said to MarketWatch: 'Their ratings are higher, but their trading performance is more akin to that of triple-C rated bonds.'

Hightower Advisors Chief Investment Strategist Stephanie Link stated that junk bond traders often "pick up on problems earlier than the stock market," and currently, the cracks are basically "limited" to the most vulnerable borrowers among junk bonds. However, she added, "I am definitely keeping a close eye on it."

Thrivent, the Chief Financial and Investment Officer, warned: 'Many of these companies borrow relatively short-term debt, but it's impossible to refinance at a rate of 15%. That's where the problem begins.'

Tracking the State Street SPDR Bloomberg High Yield Bond ETF of the US high-yield bond market, as of Wednesday afternoon, the total return since 2026 has turned into a slight loss, with a decline of over 0.2%.

Despite bonds having fallen into a difficult range, the stock price of CoreWeave has still risen by more than 60% since IPO in March 2025, and its current market value is approximately $36.5 billion.