From yesterday’s FT:
These are big players in the AI boom; consider the smaller players also participating in the AI boom:
Cback markets come to CoreWeave. The price of five-year bonds issued by “neocloud”, which leases data center capacity for artificial intelligence models, has fallen by 16% since July. Bond yields are now 15% – the rate associated with companies in financial difficulty – up from 10% in July. The price of credit-default swaps that offer insurance against CoreWeave defaults shows that the probability of a company defaulting on its debt in the next five years has risen above 60% (see chart 1).
Investors are increasingly worried that the company in the heart of AI the boom will not be able to generate the cash flow needed to pay off the large amount of debt. The concern also spilled over from the credit market causing a shake-up in the stock market, as well: a sharp collapse, heavy on technology. NASDAQ The index is now back to where it was in mid-May. Investors are pricing in bigger, more opaque—and riskier—debt stocks.
This all leads to the $5.5 trn question (by 2030) – can debt outpace cash flow as needed to fund planned capex spending?