- However, D.A. Davidson analyst Gil Luria, who has referred to CoreWeave as “the subprime tranche” of AI, warned on a podcast that the stock could go to zero if the AI funding boom falters and the company becomes unable to pay its expensive debt obligations.
- Luria told Bloomberg Television on Wednesday that CoreWeave was “destroying value at every turn” by borrowing at such elevated rates.
- “If CoreWeave is borrowing at 9% and the best return they can get off of that is a 5% return, it doesn’t matter how much they scale,” he said.
- “Borrowing at very high interest rates in order to build data centers that are increasingly commoditized outside of the hyperscalers may not end up being a good investment,” he continued. “The more leverage we use to build data centers, the more risk we’re bringing into the system.”
Monitor CoreWeave equity and debt pricing to understand where we are in the AI capital bubble cycle.
ricciardo•24m ago
Does it really matter to the big players? Aren’t they betting on AI providing super intelligence and therefore providing larger returns than the rates at which they can borrow?
Similar stuff happened with the unsustainable computer-leasing mania of the late 1960s. The president had to get involved so that they would stop borrowing more and more cash. I don’t think they really can stop borrowing if other competitors keep throwing cash on the AI build out. No one wants to be left behind and therefore will continue borrowing - even with the rising rates.
It’s a tough situation for the FED to maneuver.
toomuchtodo•19m ago
It matters if the debt they're attempting to originate doesn't math at elevated interest rates. For a personal example, how long can you last maxing out your credit cards at 20-30% interest on your wage income? Your earnings will support the debt load until the debt spiral eventually races ahead of your earnings.
In this context, debt load and interest costs continue to increase due to bond market fundamentals while earnings are not.
> First, the favorable impact of the artificial intelligence investment boom on economic activity and earnings will likely diminish significantly in 2027. That’s because what’s relevant for growth is how much investment is increasing, not its level. The increase in investment in 2026 will almost certainly be the peak. There aren’t sufficient resources — construction workers, electrical generation capacity, or chip manufacturing capacity - to increase investment by the same magnitude in 2027. Nor are the dominant hyperscalers likely to have the free cash flow and balance sheet capacity to sustain a bigger increase in investment in 2027 compared with 2026.
> Second, as the growth of investment spending slows, the growth in earnings of hyperscaler suppliers will falter, profit expectations will diminish and price-earnings ratios will shrink. The “picks and shovels” providers will suffer a double whammy - slower demand growth and profit margin compression. On the way up, higher demand leads to wider profit margins that sustain equity market valuations. On the way down, the outlook for earnings deteriorates quickly as the shortfall of demand relative to expectations is exacerbated by a collapse in profit margins.
> Third, as the investment cycle matures, the focus will shift to the returns that the hyperscalers are expected to earn on their massive investments. I suspect it will be difficult for the AI hyperscalers to generate sufficient revenue ($2 trillion or more per year) to generate the returns needed to justify an AI capital base that is likely to reach $5 trillion.
(I'd encourage you to read the entire piece, it was written by Bill Dudley, a former president of the Federal Reserve Bank of New York, and is too much to quote in its entirety)
treis•6m ago
Think of it more in terms of market cap. Google is worth 4.3 trillion dollars. They're spending on AI to protect that and others are spending on AI in the hopes of becoming that. The golden goose is serving ads and the fight is over who gets to do that.
GenerWork•8m ago
I'm of the belief that the Fed raising rates won't do much at all. There's no reason to believe that raising rates will combat inflation coming from oil prices that fluctuate based on tweets and bombing, and it seems that at this point Coreweave is dealing with high interest rates not from the Fed raising rates, but because the market is waking up and realizing that there's a hell of a lot of hype in datacenters and that risk hasn't been priced accordingly.
toomuchtodo•34m ago
US Producer Prices Up Most Since 2022 as Energy Pain Worsens - https://www.bloomberg.com/news/articles/2026-10-15/us-produc... - October 15th, 2026
CoreWeave's Bonds Turn Distressed, Drawing 'Yikes' from Musk - https://news.ycombinator.com/item?id=50090791 - October 2026
- However, D.A. Davidson analyst Gil Luria, who has referred to CoreWeave as “the subprime tranche” of AI, warned on a podcast that the stock could go to zero if the AI funding boom falters and the company becomes unable to pay its expensive debt obligations.
- Luria told Bloomberg Television on Wednesday that CoreWeave was “destroying value at every turn” by borrowing at such elevated rates.
- “If CoreWeave is borrowing at 9% and the best return they can get off of that is a 5% return, it doesn’t matter how much they scale,” he said.
- “Borrowing at very high interest rates in order to build data centers that are increasingly commoditized outside of the hyperscalers may not end up being a good investment,” he continued. “The more leverage we use to build data centers, the more risk we’re bringing into the system.”
Monitor CoreWeave equity and debt pricing to understand where we are in the AI capital bubble cycle.
ricciardo•24m ago
Similar stuff happened with the unsustainable computer-leasing mania of the late 1960s. The president had to get involved so that they would stop borrowing more and more cash. I don’t think they really can stop borrowing if other competitors keep throwing cash on the AI build out. No one wants to be left behind and therefore will continue borrowing - even with the rising rates.
It’s a tough situation for the FED to maneuver.
toomuchtodo•19m ago
In this context, debt load and interest costs continue to increase due to bond market fundamentals while earnings are not.
Bloomberg: It Won’t Take Much to Burst the Stock Market Bubble - https://www.bloomberg.com/opinion/articles/2026-08-20/us-sto... | https://archive.today/O9sQE - August 20th, 2026
> First, the favorable impact of the artificial intelligence investment boom on economic activity and earnings will likely diminish significantly in 2027. That’s because what’s relevant for growth is how much investment is increasing, not its level. The increase in investment in 2026 will almost certainly be the peak. There aren’t sufficient resources — construction workers, electrical generation capacity, or chip manufacturing capacity - to increase investment by the same magnitude in 2027. Nor are the dominant hyperscalers likely to have the free cash flow and balance sheet capacity to sustain a bigger increase in investment in 2027 compared with 2026.
> Second, as the growth of investment spending slows, the growth in earnings of hyperscaler suppliers will falter, profit expectations will diminish and price-earnings ratios will shrink. The “picks and shovels” providers will suffer a double whammy - slower demand growth and profit margin compression. On the way up, higher demand leads to wider profit margins that sustain equity market valuations. On the way down, the outlook for earnings deteriorates quickly as the shortfall of demand relative to expectations is exacerbated by a collapse in profit margins.
> Third, as the investment cycle matures, the focus will shift to the returns that the hyperscalers are expected to earn on their massive investments. I suspect it will be difficult for the AI hyperscalers to generate sufficient revenue ($2 trillion or more per year) to generate the returns needed to justify an AI capital base that is likely to reach $5 trillion.
(I'd encourage you to read the entire piece, it was written by Bill Dudley, a former president of the Federal Reserve Bank of New York, and is too much to quote in its entirety)