By Oct 15 (Reuters) – A selloff in US technology stocks and their bonds intensified on Thursday as high borrowing costs put the financing behind AI’s massive infrastructure buildout under growing scrutiny.
CoreWeave’s(CRWV.O), opens new tab bonds have sunk to distressed levels, US chipmakers have shed nearly $2 trillion in market value since last week and AI fundraising has slowed, driving investors toward the safety of Treasuries despite a second straight day of hotter-than-expected inflation data.
Here are some comments from analysts and investors:
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, NEW YORK:
“Coreweave is a proxy for other highly leveraged companies.”
“Investors are worried that there could become a debt crisis associated with these highly levered tech companies.”
STEVE SOSNICK, CHIEF MARKET ANALYST, INTERACTIVE BROKERS, NEW CANAAN, CONNECTICUT:
“What people are now questioning is the speed, the efficacy and the profitability of the rapid build-out in AI.”
“If this means the pace of data-center build-out is going to be a bit more restrained, all those hardware plays will be the recipients of less spending because people won’t be racing to buy their equipment and paying any price to do it.”
PARTH TALSANIA, CEO OF EQUISIGHTS RESEARCH, GANDHINAGAR, INDIA:
“We believe this is a rates event in credit clothing, set off by a hot CPI print, and CoreWeave is simply the most leveraged, longest-duration expression of it rather than the first evidence that AI demand is cracking.”
“The companies being paid in cash are insulated, and the exposure sits with anyone borrowing against assets whose residual value is set by a chip cycle they do not control.”
BRET KENWELL, US INVESTMENT ANALYST, ETORO, PETOSKEY, MICHIGAN:
“The sharp rise in bond yields has clearly unsettled investors, but it does not mean CoreWeave is bound for bankruptcy. However, it does force investors to reassess the economics of the business, and to take a closer look at some of its peers.”
DAVID MORRISON, SENIOR MARKET ANALYST AT TRADE NATION, LONDON:
“Given the extraordinary amounts of debt being taken on to build out AI infrastructure, higher borrowing costs are far from ideal. The concern is that these will cut into future returns, even as the likely timing and size of these returns is far from clear. This being so, there’s also the worry of overspending on capacity which may never get used.”
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE:
“I think the selloff reflects investor caution towards the more vulnerable segment of the AI ecosystem, with tech chiefs advocating a slower pace of frontier model development. Markets increasingly question the sustainability and trajectory of demand for computing capacity. These concerns are compounded by higher funding costs, which raises the investment hurdle rates of capital intensive AI infrastructure projects.”
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