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On Tuesday evening, Elon Musk told investors that the world has run out of computing power for artificial intelligence.
On Wednesday, the company most exposed to that claim got a truce from the bond market.
CoreWeave Inc. (CRWV)'s 9.625% notes due July 2032 traded at 80.5 cents on the dollar on Wednesday, broadly unchanged from Tuesday's close. Their yield to maturity stood at 14.68%.
After a brutal few weeks, that alone counts as good news.
To see how much risk investors still see, put CoreWeave next to the safest borrower in the world.
The five-year Treasury yielded 4.92% on Wednesday and the seven-year 5.01%. CoreWeave, which rents out one of the scarcest products in technology, pays nearly three times as much, almost 10 percentage points more every year.
The rest of the curve tells the same story.
The 9% notes due February 2031 traded near 83 cents and yielded 14.44%. The 9.75% notes due October 2031 yielded about 15%.
Credit default swaps point the same way.
Credit default swaps, contracts that pay out if a borrower fails to repay, cost about 1,100 basis points a year for CoreWeave on Oct. 19, a level usually associated with distressed borrowers.
S&P Global rates CoreWeave B and Moody's rates it B1. Both grades sit deep in junk territory, the bracket the agencies define as highly speculative.
Space Exploration Technologies Corp. (SPCX) reported third-quarter results on Tuesday, and Musk spent part of the call describing just how far demand has outrun supply.
"We are also frankly hounded relentlessly by every hyperscaler and by dozens of smaller companies to rent more of our compute," Musk said.
He added that SpaceX could rent out its computing capacity "several times over if we said yes to everyone."
"Yeah, so I don't think we're going to have a demand issue here," he added.
SpaceX investors loved it. The stock rose 9.1% to $161.30 on Wednesday, after touching $166.18.
CoreWeave's stock heard the same message. Shares rose 2.35% before the opening bell and climbed as much as 3.9% to $64.58 after the open.
The excitement did not last an hour.
The stock turned lower, touched $59.31, and was last down 1.13% at $61.43.
CoreWeave's business runs in three steps.
It borrows money to buy chips and build data centers. It rents that capacity to AI developers on multi-year contracts. The rent then pays back the debt.
Musk's comments are about the second step. Bondholders are stuck on the first.
At close to 15% yield, every new data center has to work much harder just to cover its interest bill.
Goldman Sachs estimated this week that CoreWeave's average borrowing costs could rise by 100 to 200 basis points while returns on new projects stay attractive. Bond investors want to see that before they believe it.
There is also an irony in where the reassurance came from. SpaceX sells the same product as CoreWeave. In the second quarter alone, its cloud-services agreements added $1.6 billion of AI infrastructure revenue.
Goldman upgraded CoreWeave to Buy from Neutral on Monday while cutting its price target to $106 from $139, according to MarketDash Analyst Ratings. HSBC kept a Reduce rating and a $39 target.
On Wednesday, Piper Sandler cut its target to $124 from $153. According to analyst James Fish, AI cloud companies can fund their growth with customer prepayments, loans backed by their chips and cash from contracts they have already signed.
Still, Fish warned the sector could stay under pressure until free cash flow improves and borrowing costs settle down.
The bond market has reached its own verdict, at least for now.
CoreWeave has the cheese. Investors just are not convinced it can keep paying for the shop.
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