<\/p>\n
It started with one chart and one word.<\/p>\n
Late on Oct. 13, tech investor Chamath Palihapitiya posted a chart showing CoreWeave bond yields at a new high. Elon Musk replied with a single word: “Yikes.”<\/p>\n
By the next morning, the whole AI trade was left wobbling. <\/p>\n
Over the past 18 months, CoreWeave and AI infrastructure peers have been investing heavily in the data center buildout. These capital expenditures were funded with debt. <\/p>\n
Now investors are extremely wary, as interest rates are about to tick higher. <\/p>\n
Why rising rates hit AI borrowers hardest<\/p>\n
AI companies have borrowed at a record pace. <\/p>\n
CNBC reported that Alphabet, Amazon, Meta, and Oracle had issued more than $228 billion in bonds as of Oct. 13, more than double the total in all of 2025. <\/p>\n
Also Read: Barclays resets Oracle stock price target<\/p>\n
JPMorgan expects the big cloud companies, known as hyperscalers, to spend $800 billion this year and more than $1 trillion a year by 2027, most of which is financed with debt. <\/p>\n
Reuters reported that the latest inflation data will translate to rate hikes, driving interest expenses higher for CoreWeave (CRWV) and other data center firms with debt-heavy balance sheets. <\/p>\n
A bond yield is the return investors demand. When yields rise, prices fall, and a higher yield also means the market forecasts more risk.<\/p>\n
“The era of easy money … is starting to disappear and dissipate,” Luis Alvarado of Wells Fargo Investment Institute told CNBC.<\/p>\n
CoreWeave’s interest bill, explained<\/p>\n
CoreWeave is where the squeeze shows up first. Its June quarter numbers tell the story:<\/p>\n
Revenue: $2.6 billion, up 112.5% from a year earlier.<\/p>\n
Interest expense: $640 million, up from $267 million last year. <\/p>\n
Operating margin: negative 1.9%, so roughly break-even.<\/p>\n
Net loss: $626 million, or $1.14 per share.<\/p>\n
Debt: $27.6 billion long-term, plus $7.5 billion due within a year, against $5.5 billion in cash.<\/p>\n
Sales doubled, yet interest expense accounted for roughly 25% of revenue. <\/p>\n
Earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at $1.3 billion, which covers the interest expense twice. <\/p>\n
CNBC reported that S&P Credit Ratings rates CoreWeave B+, which is junk territory. Its five-year credit default swaps, a form of insurance against default, topped 1,140 basis points at one point. <\/p>\n
Related: CoreWeave CEO responds as worry over spending bill comes due<\/p>\n
Gavan Nolan of S&P Global Market Intelligence said 1,000 or higher generally signals credit distress.<\/p>\n
Shares fell 15.5% on Oct. 14 and tumbled 24% last week. <\/p>\n
CEO Mike Intrator pushed back in a memo obtained by CNBC, stating:<\/p>\n
“We are confident in our backlog which more than supports all of our debt obligations.” <\/p>\n
Deutsche Bank said the backlog tops $100 billion, with about two-thirds tied to investment-grade customers such as Microsoft and Meta.<\/p>\n
Oracle has more cushion, but less room<\/p>\n
Oracle’s (ORCL) balance sheet looks stronger. <\/p>\n
In its August quarter, revenue hit $19.3 billion, up 29.6%, while operating profit stood at $6.7 billion. <\/p>\n
Its interest expense rose roughly 50% year over year to $1.4 billion. So, operating profit covers the interest almost five times. <\/p>\n
Investing.com reported that S&P Global Ratings cut Oracle to BBB- in July, one notch above junk. <\/p>\n
S&P sees a fiscal 2027 free cash flow deficit of $42 billion, and Oracle carries $167 billion in total debt.<\/p>\n
Oracle shares fell nearly 10% last week and trade 61% below all-time highs. <\/p>\n
Oracle is spending heavily on AI<\/p>\n
Mesut Dogan \/ Getty Images<\/p>\n
My take on the AI debt scare<\/p>\n
CoreWeave has contracts with the biggest names in tech, and Oracle has a $664 billion backlog.<\/p>\n
However, CoreWeave will have to improve profit margins to manage interest expenses over time. <\/p>\n
Given consensus estimates compiled by TIKR, CoreWeave is forecast to report a cumulative free cash flow of over $90 billion through 2029. It is projected to report a free cash flow of $10 billion in 2030. <\/p>\n
CoreWeave will be forced to raise capital multiple times to support its cash burn rate and data center expansion plans. <\/p>\n
More Artificial Intelligence:<\/p>\n
AI’s biggest business opportunity may not look like AI<\/p>\n
AI racks are outgrowing old power: 2 chipmakers have a strategy<\/p>\n
BofA splits software into winners and losers as AI agents arrive<\/p>\n
Companies can raise money via debt or equity. Debt will impact profitability, whereas equity results in shareholder dilution. <\/p>\n
Meanwhile, Oracle is projected to report a free cash outflow of $70 billion over the next two years. <\/p>\n
Its free cash flow is then forecast to expand from $6.3 billion in fiscal 2029 (ending in May) to $49 billion in 2031. <\/p>\n
Of the two, I see CoreWeave as the more fragile, given Oracle is much bigger, with stronger fundamentals. <\/p>\n
The AI buildout is not broken. In fact, both CoreWeave and Oracle are investing heavily in capex to support demand. <\/p>\n
However, building data centers costs billions, and much of that money is borrowed and could get more expensive. <\/p>\n
Right now, investors want proof that cash flow can pay the interest bills.<\/p>\n
More Stocks NewsCarvana is winning customers, but faces a costly problemCramer points to rare Reddit buy opportunity amid Google AI threatHow much Amazon stock does CEO Andy Jassy actually own?Albemarle has surprising new reason to rally#CoreWeave #Oracle #interest #rate #problem<\/p>\n","protected":false},"excerpt":{"rendered":"
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