The 10-year Treasury yield topped 5% on Tuesday as Fed officials floated faster hikes, the same day CoreWeave reported almost $47 billion in debt. The AI debt boom now hinges on borrowing costs the central bank is pushing higher.
Demand is not the weak point, as CoreWeave, which rents artificial intelligence (AI) computing power to tech firms, beat revenue estimates and lifted guidance. However, funding is the strain, leaving leveraged AI firms and shareholders to absorb higher capital costs.
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Can a $132.5 Billion Backlog Outrun 16% Bond Yields？
CoreWeaves third-quarter results showed revenue up 168% to $3.66 billion and a contracted backlog of $132.5 billion.
Yet some of its bonds have recently yielded more than 16%.
“At current yields, we do not intend to issue additional parent-level unsecured debt through 2027.”
Finance chief Nitin Agrawal said on the earnings call. Unsecured debt has no collateral backing it.
Instead, the company is selling equity through a new at-the-market program, which lets it issue up to 35 million shares and dilutes existing holders.
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D.A. Davidson analyst Gil Luria told Bloomberg that interest costs now exceed the companys adjusted operating income.
He also argued Nvidia has repeatedly bailed out CoreWeave and may stop if chief executive Jensen Huang steps down, as a board-led probe examines his ties to a suspected Chinese spy.
Who Pays If the AI Debt Boom Meets Higher Rates？
Moodys chief credit officer Atsi Sheth said leveraged borrowers refinancing 2021-era debt face higher financing costs next year.
Meanwhile, an unnamed holder is auctioning about $500 million of data center loans.
At the same time, Fed Governor Christopher Waller put a half-point hike on the table.
CME Groups FedWatch futures tracker now shows a 100% chance of a December hike, after Fed hike odds stood at 84% a day earlier.
Willy Walker, chief executive of lender Walker & Dunlop, said about $650 billion of commercial property debt matures in 2027, roughly what US data centers drew in 2026.
Anthropic, a CoreWeave customer, debuts on the Nasdaq next week, which may show whether public markets still fund AI at these yields.