How CoreWeave Seduced the Bond Market

CoreWeave’s shares are up 55% this month, but that rally tells just part of the story about the AI cloud provider. The company has tapped a range of sources for much-needed capital, giving it a commanding role in the AI build-out. 

CoreWeave’s big fundraising haul—totaling nearly $16 billion—also signals that both stock and debt investors are now going all in on data centers, power, chips and everything AI related. 

Surging demand for AI computing power has turned normally cautious bond investors into enthusiastic AI backers. Meanwhile, companies that want computing power for themselves are willing to write big checks up front to guarantee access. “We’re more in the period of belief than skepticism,” said Nick Robbins, CoreWeave’s vice president of corporate development.

Brace yourselves: These trends are likely to get stronger, at least in the near term. They could also cause a financial hangover if demand for AI falls short or the build-out suffers big delays. Stocks can gyrate with little impact on the economy, but if turmoil hits the bond market, lenders can get nervous and slow the growth of credit, hitting the economy. If we get big losses down the road, they could ricochet around the financial system. 

As I wrote last month, improvements in AI have caused a scramble for computing power. That has bolstered the case for expanding the data centers that provide it. For companies looking for computing power, CoreWeave has shown it can deliver. For investors, CoreWeave provides a  highly leveraged bet on the success of AI.

CoreWeave seized on the bullish sentiment. On March 31, the company closed an $8.5 billion borrowing facility ultimately backed by Nvidia graphics processing units it owns. Then on April 9, CoreWeave hit the jackpot. It expanded an earlier $14 billion deal—to supply computing capacity to Meta Platforms—by $21 billion. 

Then CoreWeave hit the market to fund the computing power it needed. It launched the sale of $1.25 billion in high-yield bonds and $3 billion in convertible securities and quickly upsized the deals by a combined $1 billion. The next day it announced that Anthropic had signed on as a new customer. 

Investors wanted more CoreWeave debt, so the company sold another $1 billion in bonds the following week, without doing a road show to pitch the offering to investors. “That’s no small feat,” said Mike Talaga, global head of credit research at Janus Henderson Investors.

In the middle of all of this, CoreWeave did its most interesting deal. Wall Street trading firm Jane Street invested $1 billion in CoreWeave and promised to spend $6 billion on CoreWeave’s AI cloud services. This offered evidence that companies other than AI developers would commit to spending billions on AI services. 

CoreWeave has become an investor favorite in part because it is in the right place at the right time. It has built a track record of delivering computing power to its customers and convincing them it could deliver a lot more. It is trying to extend its lead by adding software and other services to make its cloud offerings increasingly attractive. 

This has excited bond investors, who are funding its ambitious plans. Getting those investors on board hasn’t been easy, though. Tech companies typically don’t issue much debt, so bond investors were happy to stay away from an industry they see as risky. The bond market’s minor freakout last year over the flood of debt from Oracle and other companies building AI infrastructure demonstrated that antipathy. Oracle had to make amends to the bond market by issuing equity earlier this year. 

Bond investors were also worried about backing projects that hadn’t been built yet, meaning the cash flows that were supposed to pay the bonds were less certain. But high demand and the backing of tech giants such as Meta gave investors like Talaga comfort. “We’re OK taking construction risk because the demand is behind it,” he said.

Two things happened to boost demand from the bond market, said Talaga, whose firm manages $153 billion in fixed income assets and made early bets on Oracle and CoreWeave. In the $1.5 trillion high-yield bond market, AI-related debt rose from 0.8% of bonds outstanding at the start of the year to 2.3% today, according to estimates by Janus Henderson. That meant fund managers, who are judged on their performance against the market, had to start buying the debt or risk being left behind.

Second, funds that typically invest in bonds issued by Apple, Microsoft and other companies with pristine balance sheets realized they could earn a higher yield by betting on data center projects backed by some of the same safe companies. Bond investing is highly competitive, and picking up 1 or 2 percentage points in yield can make a big difference in performance. 

Another tailwind could lead to more bond sales by companies building AI infrastructure. Bond investors like putting their money into debt-issued public companies such as CoreWeave, which disclose more information and are more widely followed than lesser-known rivals. They also like the comfort they get from lending to a company whose shares are trading in the market. While private companies have equity too, bond investors take comfort in seeing the equity that helps protect them from losses trade on the stock market.

All this means that after companies such as SpaceX, OpenAI, Anthropic and data center developers like Crusoe go public, they can more easily issue debt. That would further raise the amount of tech bonds in the market. 

We can give a big round of applause to CoreWeave and others for blazing this path and helping satisfy the soaring demand for AI computing power. Or we can fret that they’ve spread the AI frenzy that has valued money-losing companies in the trillions to the more sober bond market. 

Either way, bond investors are now all in on AI. Let’s hope they get paid back.