Coreweave, a data center developer, is in trouble – critics see it as a warning sign for all of AI

Coreweave, a data center developer, is in trouble – critics see it as a warning sign for the entire AI industry Interest rates are rising, and resistance to data centers is increasing. Therefore, doubts are growing in the financial markets about whether the company, which is closely linked to the chip developer Nvidia, is viable. There is a good reason why media spokespersons twist their bosses' messages: investors are often not ready for ruthless honesty. This was also learned by Brannin McBee on Wednesday, co-founder of Coreweave, a cloud storage provider specializing in AI applications. He told the "Financial Times" that Coreweave is seeking a higher credit rating to borrow money more cheaply. In particular, they want to attract the "unlimited" capital that life insurers hold and invest. A high credit rating is usually a condition for life insurers or pension funds to be able to invest in bonds. Doubt grows McBee is naturally right that it would help his company if it could obtain money on more favorable terms. However, his statements did not have the desired effect. Instead, some investors looked more closely at the question of why Coreweave has to pay such high interest rates for its bonds – and panicked. The Coreweave stock plummeted by over 20 percent on Wednesday. On Thursday, the stock recovered slightly; Nvidia's CEO Jensen Huang, whose company holds 11 percent of Coreweave, appeared "optimistic" about the future of the company at a Bloomberg event in Sweden. However, on Friday, the stock once again fell by over 10 percent in the first trading hours. The stock of the direct competitor Nebius suffered a similar decline. It is worrying that Coreweave's bonds have also lost a lot of value. It costs 11 percent to hedge against the company's default for one year. The market therefore takes very seriously the risk that the AI cloud provider will no longer be able to repay its debts. Coreweave was founded in 2017 under the name Atlantic Crypto to mine the cryptocurrency Ethereum with Nvidia graphics chips, but it completely changed its business model in the coming years. The new model is simple: Coreweave buys optimized computer chips from Nvidia for AI applications, puts them in data centers, and leases the computing power to companies like Microsoft, OpenAI, or Meta, which use it to train and operate their AI models. Established cloud providers like Amazon or Google are also investing huge sums in the expansion of AI infrastructure. The difference between them and so-called neo-cloud providers like Coreweave or Nebius is that they have successful other business areas that provide them with a steady cash flow. Until recently, they could therefore pay for their investments from their own pockets. A Price, Two Perspectives Coreweave, which went public in spring 2025, does not have such reserves. To buy tons of Nvidia chips, the company has therefore been in debt under expensive conditions for some time. And to defend itself against criticism, it pursues a very risky business model. The situation has intensified in recent weeks because interest rates in the US have risen overall. The yield on 10-year US Treasury bonds, which are considered very safe and therefore used as a benchmark for corporate bonds, has risen to over 5 percent. As a result, borrowing costs have also increased for companies. Coreweave has always argued that it can afford the high costs of raising debt because there will be huge demand for computing capacity for years to come, but only a limited supply. In addition, the company's executives point to a backlog of orders amounting to 104 billion dollars by mid-year. The major customers have also entered into so-called take-or-pay agreements with Coreweave. This means they have committed to paying for computing power in the coming years, regardless of whether they will actually need this service. Risk Factor Politics Coreweave therefore depends on customers like OpenAI having enough money to pay their bills in the coming years. The second Achilles' heel of Coreweave is the construction of data centers. Customers only have to pay if Coreweave can actually deliver the ordered computing power. However, there is increasing resistance from the public in the USA to new data centers, which the chosen politicians have naturally registered. Left and right states like Texas or New York have imposed moratoriums on new constructions. Others are taking the approval process much more seriously or adding conditions that the operator of the data center must cover its own electricity costs. The developers' schedule is therefore in danger. Coreweave is also affected: the company must deliver a large part of the promised 104 billion dollars in computing power to its customers between 2027 and 2029. If construction projects are delayed, the expected payments will also be lost. The direct consequences of a collapse of Coreweave can be managed: the company has taken on around 50 billion dollars in debt and has a market value of currently 35 billion dollars. A large part of the capital also comes from lenders like Nvidia itself, who can bear the losses. The stocks of the hyperscalers Alphabet, Microsoft, and Amazon have only moderately lost value during the week, and their bonds are still considered safe. Nevertheless, Coreweave can be a warning sign for the entire industry. How investors negotiate the big risks accompanying the expansion of AI infrastructure under a microscope. The fact that companies and private individuals will use increasingly more artificial intelligence in the future is beyond doubt. Whether this development will pay off for those companies that build data centers and program AI models is not yet said. As long as this question is not resolved, uncertainty will remain in the stock and bond markets.