Musk warns of depleted computing power, CoreWeave (CRWV.US) sees bond market relief but still demands triple US Treasury yields
Boosted by Musk's comments, CoreWeave bonds have stabilized in the short term, but the yield remains as high as 14.68%, about three times that of U.S. Treasuries. Despite stock price fluctuations, high borrowing costs and rating risks keep investors cautious.
According to Woofun AI, Elon Musk signaled on Tuesday night that global AI computing power has been exhausted, a statement that directly led to a brief reprieve for the CoreWeave bond market on Wednesday. However, the strong performance of SpaceX (SPCX.US) has not alleviated the deep financing predicament facing CoreWeave.
Data compiled by Woofun AI shows that although the CoreWeave bond market has shown signs of stabilization, risk premiums remain high. The 9.625% coupon bond maturing in July 2032 traded at 80.5 cents per dollar on Wednesday, basically unchanged from Tuesday’s closing price, with a yield to maturity of 14.68%. Compared to the extreme volatility of the past few weeks, this performance is seen as a positive, but investors’ risk pricing remains firm. For comparison, the yield on the 5-year U.S. Treasury note was 4.92% on Wednesday and 5.01% for the 7-year. As a technology scarce-resource lessor, CoreWeave faces interest rates nearly three times higher than Treasuries and bears an annual interest burden close to 10 percentage points higher (about 976 basis points).
Bonds of other maturities show similar characteristics: the 9% coupon bond maturing in February 2031 traded at about 83 cents per dollar with a yield of 14.44%; the 9.75% coupon bond maturing in October 2031 yielded about 15%. Credit Default Swap (CDS) data confirms this trend, with CoreWeave’s CDS annual cost at around 1,100 basis points as of October 19, a level usually associated with distressed borrowers. S&P Global (SPGI.US) rates CoreWeave at B, and Moody’s (MCO.US) rates it B1—both considered highly speculative.
Space Exploration Technologies (SPCX.US) announced its third-quarter results on Tuesday. During the conference call, Elon Musk emphasized that demand is growing much faster than supply, noting that large tech firms and dozens of small companies keep pressuring for more rented compute power. If all requests were fulfilled, business volume could multiply several times—there is no shortage of demand. This news pushed SPCX stock up 9.1% to $161.30 on Wednesday, intraday reaching a high of $166.18.
CoreWeave’s share price also rose in early trading, up 2.35% pre-market and then rising 3.9% post-opening to $64.58. However, the gains did not last an hour, then fell to an intraday low of $59.31, ending the day down 1.13% at $61.43. CoreWeave’s business model relies on borrowing funds to buy chips and build data centers, then renting them to AI development firms through multi-year contracts to repay its debts. Elon Musk’s comments are beneficial for the rental side, but bondholders remain burdened by high costs of the initial funding. With bond yields reaching 15%, building new data centers requires even greater effort to cover interest payments. Goldman Sachs (GS.US) expects this week that as long as returns on new projects are attractive, CoreWeave’s average borrowing costs could rise another 100–200 basis points.
It’s worth noting that the optimistic outlook from Goldman Sachs comes as its client SpaceX generated $1.6 billion in revenue for AI infrastructure through its cloud services business in the second quarter, selling products identical to CoreWeave’s offerings.
Institutional rating adjustments and market disagreement further highlight the valuation pressure on CoreWeave. On Monday, Goldman Sachs raised its rating on CoreWeave from “Neutral” to “Buy,” but cut its price target from $139 to $106. HSBC (HSBC.US) maintained its “Reduce” rating with a target price of $39. Piper Sandler (PIPR.US) on Wednesday lowered its price target from $153 to $124. Analyst James Fish noted that AI cloud services firms can support their development through client prepayments, chip-collateralized loans, and cash flow from signed contracts, but he warned that unless industry free cash flow improves and borrowing costs decline, pressure will persist. The bond market has already made its judgment: despite CoreWeave’s resource advantage, investors do not believe it can sustainably bear the high operating costs.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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