AI Stocks Slide as Investors Question Debt-Fueled Data Center Boom

Shares of AI infrastructure companies tumbled this week as investors grew wary of the massive debt financing the sector's data center expansion. CoreWeave, a Nvidia-backed cloud provider, saw its stock drop 15 percent on Wednesday before recovering 5 percent Thursday after CEO Jensen Huang voiced support. The company carries roughly $50 billion in debt, and its bond yields have surged above 15 percent, a level typically signaling distress.

The selloff spread to other "neocloud" operators, including Cerebras Systems, Nebius Group, and Iren Ltd., which each fell roughly 13 to 14 percent since Monday. Credit default swaps on CoreWeave debt climbed to around 1,000 basis points, implying a nearly 63 percent probability of default within five years, up from roughly 30 percent previously.

“CoreWeave's financial strength is improving every day. Their cost of capital is actually decreasing.”

Analysts say the rout reflects a realization that surging AI demand does not guarantee a profitable business model, especially if borrowing costs keep rising. The turbulence has already prompted companies like smart ring maker Oura to delay initial public offerings as they await a test case from Anthropic's upcoming listing.