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CoreWeave’s debt is becoming the whole AI industry’s problem
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CoreWeave had a bad week last week.
Key facts
- CoreWeave is the poster child for AI debt, and as of its second quarter earnings, owed more than $35 billion
- The answer is “remaining performance obligations” from its customers, $103.7 billion of them as of the second quarter
- About 40 percent of that money is due to CoreWeave in 2028, and the companies who’ve agreed to these contracts can’t cancel them except under some limited circumstances
- Last Tuesady Chamath “SPAC King” Palihapitiya noticed the distressed debt, and also asked whether the AI buildout was a private credit bubble
Summary
Last Tuesady Chamath “SPAC King” Palihapitiya noticed the distressed debt, and also asked whether the AI buildout was a private credit bubble. Now, the reporter has also asked if the AI industry is a bubble, but when the SPAC King echoes concerns held by a lady whose ongoing question about AI is “ How are we planning on affording this, champs? ”, that’s a different signal. When you talk about wanting to tap into the enormous sums of money that insurers have, that’s the kind of thing that makes investors afraid that CoreWeave is going to borrow even more. To make things worse for CoreWeave, Brannin McBee, one of the company’s cofounders, told the Financial Times, also last week, on the same day as Palihapitiya’s post, that the company wants to have its debt be investment-grade, rather than junk, so that it can borrow from insurers, as their capital is, in his words, “unlimited.
“The problem is not that credit profiles have changed in the last year, it’s that we’ve got another year and a half of supply coming,” Bloomberg quoted John Yovanovic, co-head of leveraged finance at MetLife Investment Management, as saying.