CoreWeave Slump Stokes AI Investment Anxiety as Rates, Midterms Threaten Year-End Rally

Debt repayment pressure at AI infrastructure companies is weighing on hopes for a year-end rally in U.S. stocks. CoreWeave’s sharp stock decline has sharpened concerns about funding, while the prospect of further monetary tightening and possible data-center regulation after the midterm elections has emerged as another risk.

CoreWeave shares fell about 12% on Oct. 16. The stock had plunged 15% on Oct. 14, then rebounded 6% on Oct. 15, only to resume its decline a day later. Persistent inflation and the possibility of higher interest rates are adding to the strain on heavily indebted AI infrastructure companies.

CoreWeave has about $13.5 billion of principal and interest due by the end of next year. That is more than its projected revenue of about $10 billion for next year. With operating losses continuing, the company needs additional funding. Yields on bonds it issued in July have also risen into the 15% range, adding to concerns about financing conditions.

Wall Street remains divided. Deutsche Bank, Bank of America and JPMorgan view the selloff as a buying opportunity. Still, a Deutsche Bank analyst added that, as an equity analyst, he may be missing the technical aspects on the credit side. Ruchir Sharma, chair of the Rockefeller Foundation, said rising interest rates have ultimately been what burst bubbles.

Earnings reports from major technology companies over the next two weeks are shaping up as a key test for AI investment sentiment. Faster cloud growth could help restore confidence in AI demand and improve financing conditions for related companies. SpaceX is due to report its first quarterly results since going public on Oct. 20, followed by Meta on Oct. 21.

Even within AI-related stocks, memory makers are drawing a more cautious view. UBS said it is keeping the sector low on its list of investment priorities despite attractive valuations, citing medium- to long-term supply concerns and the possibility of additional production capacity coming to market. The bank said output expansion by Chinese companies could weigh on future supply and demand.

The business environment after the midterm elections is also a factor to watch. 22V Research estimated that if a Democratic candidate or a Republican candidate campaigning on data-center regulation wins, the number of states currently favorable to data centers would drop to about 15 from 27.

Stronger-than-expected U.S. consumer prices, producer prices and import prices for September are heightening concerns about further tightening. Some argue that even if the Federal Reserve holds rates steady in October, it could still raise them by 0.5 percentage point in December. Neil Dutta, an economist at Renaissance Macro, warned that ruling out a hike at the October meeting could create the risk of having to deliver more rate increases later.