2031 bond yield breaches 16% intraday… CDS surpasses 1,000 bps to hit all-time high
JPMorgan maintains overweight, Deutsche Bank keeps buy rating… Projected facility investments at 4.5 times operating cash flow
While shares and bonds of AI cloud provider CoreWeave fell in tandem, some Wall Street investment banks maintained positive stock ratings. In the bond market, the funding burden required for massive investments came into focus, but JPMorgan Chase and Deutsche Bank evaluated the company's growth potential based on demand and long-term customer contracts.
According to Reuters, the yield on CoreWeave’s dollar bonds maturing in October 2031 exceeded 16% intraday on the 15th (local time). The five-year credit default swap (CDS) premium, which hedges against default risk, also topped 1,000 bps, marking a record high. While 16% represents the secondary market yield of existing bonds and does not apply to all of the company's borrowings, higher yields demanded by bond investors could pose a burden for future new borrowings and refinancing.
The anxiety was not limited to CoreWeave. According to a Goldman Sachs analysis cited by Yahoo Finance on the 16th, the option-adjusted spread on AI-related dollar-denominated high-yield bonds widened by 25 bps between the 13th and 14th to a record high of 360 bps over U.S. Treasuries. By contrast, the widening for non-AI high-yield bonds over the same period was a mere 2 bps. Amanda Lynam, senior credit strategist at Goldman Sachs, analyzed that high interest rates and energy costs are prompting a reassessment of investment returns for lower-rated AI companies.
Equity analysis, meanwhile, placed greater weight on secured demand and contracts. According to reports on the 16th by The Fly and Benzinga, JPMorgan analyst Samik Chatterjee maintained an overweight rating on CoreWeave. He noted that data center demand has improved over recent months and that CoreWeave sells computing capacity through long-term contracts prior to facility operations. Given this business foundation, he judged recent market concerns to be excessive.
A Deutsche Bank analysis reported by Investing.com on the 15th also highlighted contract profitability. Analyst Brad Zelnick maintained a buy rating and a $150 price target, explaining that the majority of the order backlog is based on long-term take-or-pay contracts. Under a structure where customers make scheduled payments regardless of actual usage, contract revenues are seen as sufficient to cover related capital expenditures and operating costs while leaving a profit.
The issue is that having solid contracts and having sufficient expansion capital are two different things. Deutsche Bank estimated CoreWeave’s operating cash flow over the next 12 months at approximately $10 billion, and required capital expenditures over the same period at roughly $45 billion. With projected capex reaching 4.5 times operating cash flow, this implies that cash generated from operations alone cannot cover investment demand. Zelnick noted that additional capital is needed, but that it can be steadily raised based on customer order backlogs.
Funding costs also vary depending on the borrowing structure. According to Deutsche Bank, CoreWeave has raised project-by-project financing backed by customer contracts, with costs equal to or lower than the parent company's borrowing rate.
Differences across funding structures were also observed in the data center securitization market. Vish Tirupattur, chief fixed-income strategist at Morgan Stanley, explained in an August 21 podcast that the widening of yield spreads for data center asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) was smaller than that of unsecured corporate bonds. He analyzed that these assets—where construction, power connection, and leasing are already complete—generate contract-backed cash flows, while the pace of issuance has been relatively moderate.
Synthesizing these analyses, the key question is whether CoreWeave can secure required investments in a timely manner while keeping borrowing costs at a manageable level for its business. Exactly how much capital is raised, and under what terms, based on customer contracts will serve as the benchmark to judge bond market anxieties against the optimism of certain IBs.
