CoreWeave Is Imploding — And Taking AI Stocks Down With It

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Welcome to Profty Markets. I'm Ed Elson. It is October 15th. Let's check in on yesterday's market vitals. The major indices declined on the latest inflation data and continued pain in the chip market. We will cover both of those topics today. The yield on tenure treasuries spiked back above 5.3% following that inflation report before retreating by the end of the day. Bank of America stock fell nearly 5% after the company missed on profits and took a $1.2 billion penalty. That charge was for a failure to monitor instances of money laundering and finally shares of bending spoons soared more than 42% on news that Berkshire Hathaway has built a 4% stick in the tech roll-up company. By the way, I recently interviewed the founder and CEO of Bending Spoons. You can go check that out. And one last thing. Today is the final day for voting in the Signal Awards. So if you like our show, please head to vote.signal-award.com. Cost your ballots for us in each of these three categories. Best video podcast, best daily podcast and best money and finance podcast. We'll leave a link in the description to make it easy for you. Thank you so much. OK, what else is happening? AI Cloud Company Core Weave might be on its last legs. On Tuesday, the yield on one of its bonds touched 15% reaching a new record high. Those bonds come due in 2032. Then the stock tanked on fears that the company wouldn't be able to pay back its massive amounts of debt. Yesterday, it closed down 16%. Core Weave brought down other AI infrastructure companies as well, including Oracle, Nevious, Broadcom and Vidya, TSMC and Micron, all of which ended the day in the red. The stakes are quite high for Core Weave. As of the end of June, the company had about $52 billion in debt and lease obligations up from roughly $15 billion a year earlier. Last quarter, it paid $640 million in interest more than double what it paid this time last year. In yesterday's episode, our guest, Gil Luria of DA Davidson, warned us that if the AI trade falters, Core Weave's equity could go, quote, "to zero." So is that going to happen? Here to break this down, we're speaking with Paul Kadrosky, managing partner at SK Ventures. Paul, great to see you. Thank you for joining us. So Core Weave has been taken to the cleaners today, along with a lot of other heavily debt-laden AI names. So Nevious is down 11%. Iron is down 12%. Oracle is down almost 9%. Or at least that was the closing price. Let's just start with your general reactions. What is happening here? What are the markets telling us? So the funny thing is, this has taken so long to happen. I mean, the situation at Core Weave hasn't really changed dramatically from eight months ago. It's just that it takes people a long time to notice. And the situation, of course, is that it's among the most indebted of the Neoclouds and has, as you pointed out, an incredibly high debt burden. And that debt burden either has to be refinanced or has to be paid for by selling tokens to people who rent space in the Neoclouds. And all of those get more difficult when you have exactly this kind of debt spiral going on. No different than the US in the 10-year spiking. And then all of a sudden, that has an effect on the deficit. As people look forward with the increasing cost of Core Weave's debt as the spreads blow out, they look forward and say, wait a minute, that has implications for the refinancing in future raises. And so as a result, that becomes the same sort of debt debt spiral that you've seen in some sovereigns. And it's just playing out. It took a long time to play out inside of Core Weave. But it's finally happening. And there's a whole bunch of reasons why probably among the largest is that in the same way that fundraising among AI CapEx fundraising has squeezed sort of the mid-geration treasuries, the 10 years, for example, which is incredible and has never really happened before. The reverse is also true. That as the 10-year equivalent duration treasuries become more attractive, it becomes much more difficult for these highly indebted Neoclouds to raise money. So this perverse relationship goes in both directions. And the net effect is both of them have much more consequential debt burdens and then interest rates going forward. And the difficulty for a Neocloud like Core Weave is unlike the United States. It doesn't have a treasury department. And it can't print money in the basement. The CEO of Core Weave responded to the price move. And he said that the market is acting, quote, irrational. He said that the problems at other companies are, quote, bleeding into the narrative around Core Weave. And that the market, quote, misunderstands the company. Do you agree with these comments? No, I mean, these are very typical. I mean, he has to say these things. I don't want to imply that there's any kind of criminal nefariousness in here. But you have to say these kinds of things to support the company and say that this is not company-specific. This is something broader in the AM marketplace. But it's not. It's very specific to the most indebted Neoclouds because of these twin phenomena of higher cost of debt, higher cost of debt servicing. So that's at the one end. And at the other end, and Epic AI had a great report about this, about the continuing staggering deflation in token prices. So Epic had a report out, I think it was earlier in the week, porting out that we've had for the last four years, roughly a 13-fold annual decrease in the cost of tokens. So doing the math, it's pretty straightforward. It's price times volume. And I got debt that I have to service from that price times volume. That becomes astronomically more difficult, given the increasing volumes required, if I'm seeing an annual decline of around 13-fold in terms of the cost of tokens to put it in context, that means you have to grow to stand still. You have to grow your token sales, if you will. You think about it like copper or oil or anything else. 1,300% a year. That's what 13-hunt-fold means. Bringing it back even more. That means you have to double your token sales every 90 days. This is very tough math made worse by the blowout and the rates and the increasing cost of servicing the debt. So these two feed on each other. So if you've got declining token prices, which essentially means that unless they explode their business, they've got less money coming in. At the same time, you've got rising yields, also rising yields across the board. I mean, you've got rising yields on-- And rising spreads, too. It's important to say it's not just the yield, right? I mean, so the spread over treasuries is blowing out as well. So there's these two things happening at once, which makes it even more complicated. Right, which I guess the question is, is there a scenario if spreads remain as high and if yields remain as high, is there a scenario in which core weave doesn't end up defaulting? I mean, I guess that is the question that investors are trying to pulse out right now. But it does seem that the likelihood that they will not be able to make their interest payments is extremely high. Do you see a world in which they do figure it out? No, so I see instead a world where at best, you have fairly radical restructuring of their debt obligations, which is what the markets are telling you, right? When the debt's trading at, say, $80 cents on the dollar, when you do the default math, it's saying there's a significant likelihood I will not be repaid in full. And the reason you're generally speaking, while you're not repaid in full, it's not because of an alien invasion, it's because the debt gets restructured. If investors actually thought it was unlikely to be paid at all, obviously it would be trading at a much lower because we're talking about debt that matures in 2032. So it's not actually that far away. So when you see a trading at these levels with the market, the debt market's trying to tell you is, this stuff gets restructured, you're not getting a dollar. Galtner came out with an analysis. They estimated that 80% of neoclass will be out of business by 2030. And there are a ton of these companies, CoreWeve, Lambda, NeBS, Iron. I mean, I could go on all these new names. Or you can even look at the withdrawn, some of the withdrawn Australian IPO whose name escapes me was Kotu back. I can't remember who it was. - Yes, Fannas. - But there are another example, right? So even the public markets are reluctant to receive these guys. By the way, as an aside with Galtner, there's a great line from Mike Milken from years ago, is you only get maximum points for predicting things before it happens. And so the problem with the Galtner and the stuff is, okay, yeah, now you're telling me, when it's absolutely obvious that these things are just stressed, I'm sorry, I don't put a lot of stake in that. So yes, they're not wrong. It's just, it's not particularly helpful to tell you this as the spreads blow out. Yeah. I guess the question is, it sounds like you believe that this isn't just a core weave problem. This is, this is a systemic problem. This is true of, I mean, does it go beyond the Neoclouds? Do you think this is true of Oracle as well? I mean, Nvidia was down a little bit, you know, three or four percent. I mean, that balance sheet, I think, is a lot more healthy than a lot of these companies. But who do you consider to be in the red zone? So the Neoclouds across the board and probably Oracle as this kind of, I don't even know, want to be hyperscaler/Neocloud, who's managed to find itself in the gun sites of two different rifles. So I think that's the group that's most troubled here. And I think the way to think about it is much like what was happening during the GFC, the global financial crisis, where all of these banks were saying, listen, there's nothing wrong. Like our debts, and we're not defaulting on our debt, but the market instead was saying here, what you have is a refinancing problem. We see a wall of refinancing ahead. And there's a lot of data out there to show that between 28 and 32, there's a massive wall of refinancing, and it ain't going to happen at the prices to justify your business as it currently looks. One pushback that I've heard is Core Weave has this Nvidia relationship. Nvidia invested more than $2 billion in the company. They own around 10% of the company. They have committed to buy billions of dollars worth of compute. Perhaps there's a world in which Nvidia bails them out or Nvidia saves them, or they make sure that Core Weave and any of their other little neocloud startups that they have backed to make sure that none of them will fail. Is that something that is, is that a reasonable prediction? Do you think that could actually happen? No, I don't think so. I think this is like this classic speculative game. The market likes to play. It's the old sort of like, if my aunt had wheels, should be a bicycle problem. Yeah, absolutely. If I grant you that, then everything else follows. But I have to grant you something wildly implausible in the first place, which Nvidia sees the need to own and restructure a neocloud, and it's really difficult to see why they would do that. Wouldn't the problem be that it could, if Core Weave goes out of business, if Core Weave has to default on its debt, is there not a situation where investors' confidence in the entire AI trade will be completely shaken, and that this could be sort of the beginning of the end, and the House of Cards starts to fall. I mean, might it be in Nvidia's best interest to take their billions of dollars in cash and just say, okay, we'll make sure that you stay propped up, keep you afloat so that we all stay afloat. The problem is the scale of the obligations once the dominoes start falling. So once it starts here, how far do you go with this? It wouldn't surprise me to see someone try to staunch the bleeding as the first neocloud fails, but the problem is then of course, the cascade will continue, because the market will test your commitment to the trade, as it were, and as a result, how many of these companies are you willing to backstop in an effort to make sure that you don't have this rippling cascade? And suddenly, you say to yourself, as Nvidia or someone else, it's, hang on a second. I'm not hangpolson, and I'm not the Federal Reserve. I'm not in the business of billing out the system. The system goes down without me. So my understanding is you believe that that we're going to see a pretty significant correction. How close in your mind are we to that point? Given what we saw with Cory. Timing is always, always impossible. I mean, I've been saying sometime between now and the first second, second quarter of next year, but I saw Paul Tudor Jones on CNBC yesterday saying sort of something similar, you know, so he's much smarter than I am. So I'll go with Paul and say the first half of the year, but I think it could be, it could be sooner. The thing is is that one way to think about what's going on, and I get this question all the time, it's like the timing question, and they say, well, you can't be soon, because market price earnings multiples are nothing like they were back in the.com era. Where's the bubble, Paul? Where's the bubble? And of course, the answer is the valuation of open iron and tropical loan to combine in the private markets and what we're likely to see as they come public is already more than the peak Nasdaq valuation when it crashed in 2000. So the problem is, is people are looking in public markets for a thing that's sitting in plain sight in private ones. And so we're already there and the triggers are everywhere. But it's your view then, the bubble exists, but it's not pervasive to the entire market. It's in pockets of the market. It's in places like private markets or the Neo clouds or certain chip manufacturers. There are some stocks which are way over their skills. Yes, I mean, it's wide spread. It's just the private markets are the new public markets. That's the term we've been hearing now for five years because of the disappearance of public equities from the marketplace. And so as a result, unsurprisingly, if private markets are the new public markets, private markets were the problem is. And the only exception to that rule broadly is China where something now, there's something like 880 AI list public companies that are AI related now up from zero two years ago with a combined market cap of something like three trillion. So they're well on their way to creating on the public sites. We have the private side happening here because we've decided that private are the new public and the public side happening in China. And those two are rippling and going to like like waves coinciding whenever they go down, they'll bring each other down. And so that's say $6 trillion in nonsensical market capitalization. As we record this, anthropic is just wrapping up its private investor day. They're reportedly disclosing some of their financials to the pre IPO investors. Supposedly, some of those financials might come out soon. We haven't seen them. Maybe they'll be out by the time this episode as. And by out you mean that some investment banker will leak it. This is the thing, right? I mean, people, they leak. It's so hilarious. People act like they found a copy at a hotel lobby. No, it's an investment banker who says, hey, by the way, here's this, call it a leak. No, it's just pre-marketing the IPO, which is illegal, of course, but the bankers do it anyway. So anyways, I digress, but that's what's really happening here. I assume that whatever numbers we see, you don't think will be particularly informative as to what is actually going on in terms of their financials. The only two numbers I really care about, and one is the level of customer concentration, because we have a pretty strong sense that more than 80% of the revenues are perhaps aid companies. And I want to see, so I want to see the customer concentration, because if that's so, that's unprecedented. And in particular, I want to see what's happening with respect to the coding aspect of that, because my hunch is, and we've seen this in recent data, that we're really at the other end of this coding frenzy that drove the initial adoption, and so everything now has to happen from other marketplaces that look nothing like coding. So those two things are all I care about, and I doubt they'll give us much color on those, and the rest will be just earnings before bad things. Paul Kajowski is managing partner at SK Ventures. Paul, I always appreciate it. Thank you. Sure. After the break, the latest inflation data. And be sure to tune in tomorrow, October 16th, for a live stream with our very own research associate, Dan Shalan. He's going to be breaking down the winners and losers of the autonomous vehicle wars. You can subscribe to access that conversation, and many others at profgmedia.com/subscribe. Remember routine, October comes to shake things up a little more. The light changes, the days get shorter, and sometimes those good habits you built up can slip. So, if your diet has gotten a little off track, AG1 makes it easy to add some consistency back into your morning, just mix one scoop with cold water every morning before anything else. One scoop, and eight ounces of cold water in the morning, can help you maintain energy, support, gut health, and immune system all day long. 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This and other information can be found in the funds perspective at getvcx.com. This is a paid sponsorship. Hi everyone. I'm Cara Swisher. And I'm Scott Galloway. Twice a week we get together on pivot to sort through the biggest stories in tech business and politics and we're taking the show back on the road for a live tour in November. So we'll bring hot tags, I'll bring the inside and the dick jokes and Cara will try. Keyword is try to keep me in check. you'll get to see her uh - Hit me in person, live. - I'll do it. If someone has to do it. - We'll cover AI, whatever chaos washing is cooked up that week, and every billion are misbehaving. - That's all of them. And you'll also get to participate in audience Q&A, so bring your best questions, Scott. We'll probably answer ones you didn't ask. We also have secret special guests, which you'll enjoy for every city. Get tickets at pivottour.com, that's pivottour.com. - We are selling out, so don't wait, and we look forward to seeing you. - We're back with Profty Markets. Prices rose 3.7% in September from a year earlier, the highest rate since May. The bulk of the increase in prices came from energy. Gas prices rose 9.1% for the month, and are up 34% for the past year. However, core prices, which exclude food and energy, rose by 0.3% month over months. By 0.3% month over month, which was also hotter than expected. Meanwhile, September marked the sixth straight month of declines in Americans' real earnings. Average hourly earnings, adjusted for inflation, are down 0.7% from a year earlier. Stocks fell, and the yields on the tenure treasury rose after this inflation report was released. So joining us to discuss this inflation report and the state of inflation in the US today. We are speaking with Mark Zandee Chief Economist at Moody's Analytics. Mark, pretty bad reports. 3.7% an increase from previous month, higher than expected. Real wages down again. What do you make of this? - Yeah, not good at. I mean, inflation is uncomfortably high, and you know, the Iran Wars fingerprints are all over it. Obviously the higher energy fuel costs go directly to the war. And there's a lot of pass-through going on into the rest of the economy and adding to the inflationary pressures. Terrorists don't help, and immigration policy also are an issue, but that war is really causing, juicing up inflation and causing a lot of problems. And as you say, its inflation is now consistently above the rate of wage growth. So people's purchasing power are there now, it's now declining. And it obviously goes to the eggs that many Americans feel at this point. - I just saw this statistic, which I just found fascinating, which is that since Trump took office again, since he returned to the White House, in real terms, American wage growth, the average American wage growth is zero, which is just quite fascinating considering that the economy's strong. Earnings are exploding up around 40% since he took office. I mean, is that just evidence, more evidence of a k-shape taking effect? - Yeah, it is the k-shape to come. I mean, but this is not a surprise, right? We go back, roll back the clock to right before the tariffs in April of 2025. Maybe the tariffs were coming and, you know, economists said like me and almost everybody else that tariffs are gonna lead to slower growth and higher inflation than the immigration policy, same deal, slower growth, higher inflation. And of course, the wars, that's pretty obvious, a slower growth, higher inflation. So, you know, it's not surprising that, you know, we are where we are, you know, given inflation and now it's undermining real wages. And to your point about the strong economy, it's okay, but can't be that strong, right? I mean, if we wait nominal wage growth, that's, you know, with inflation considered, is decelerating, that means that the labor market is on the soft side, and we're not operating at full employment. So, you know, we're 4.2% in employment rate. So, you know, I'll take it, but, you know, at the end of the day, we're still not at full employment. Yeah, I guess it just depends on what your definition of the economy actually is. And we keep on hearing different bragging points. I mean, usually it's that stocks have risen or that GDP is going up, but as you say, I mean, this, when you look at a lot of other things, it's not looking great. One thing that I have been hearing is that consumer spending is going up. And therefore, that is a sign that, you know, the American consumer is strong. What do you make of the consumer spending statistics? And what does it tell us about the overall health of American households right now? Well, they're okay, too. And this goes back to the case shape, right? I mean, the consumer that's driving the train or is the well to do with the folks that own the stocks, right? I mean, AI stock prices is going, the stock market is going straight north, or at least it has been. They all goes back to AI, artificial intelligence and AI stocks. They, you know, since chat GPT was pulling the plan in four years ago, they've gone straight up. I mean, total shareholder wealth. You can take all the stock wealth outstanding. It's doubled in four years from 35 trillion to 70 trillion. That makes a lot of people, you know, feel pretty good about spending. And those folks that own the stocks, they're outspending and driving the train. Everybody else, and that's probably, you know, two-thirds of Americans that don't own much of any stock, or in many don't even own their own home, they're hanging in there, but they're by their fingertips. And of course, I don't know how much longer they can hang on when they're real purchasing powers to climbing and they're saving rates are now about as low as they can go. So it feels like, you know, the consumer is going to show, you know, a bit of a bend here. And particularly if the stock market doesn't continue to move north. You did a calculation of the costs of the war for American households specifically. Could you take us through that calculation? How expensive has the wrong war been for the average American? Yeah, well, the headline is, and I put out a social media post because we just hit $2,000 in extra cost related to the war. And that breaks down into three broadly three things. One is obviously the higher cost of energy, gasoline, fuel, diesel prices, jet fuel, home heating, that kind of thing. That's the bulk of the higher cost. Then there's the cost of higher interest rates, right? Because, you know, the Fed's been pushing on the brakes to slow things down because of the high inflation for going back to the war. And take the 10-year treasury yield, you know, the day before the war started in late February, we're sitting at a 10-year yield that was below 4%. Now we're sitting with a yield of five and a quarter percent. So a lot of that goes back to the war. So you account for all that. And then the third is the military cost because ultimately, at the end of the day, that's a cost that's going to be borne by you and I and taxpayers and American people through, you know, however we address it. And I took the Pentagon estimates for that. So, you know, there's a lot of other costs involved. And, you know, everything like, you know, fertilizer costs are up, which is going to affect crop prices and groceries down the road, helium prices, which affect the cost of semiconductors and the price of the consumer electronics that we buy. I think I couldn't account for that. They're too hard to account for. So in my view, that $2,000 estimate is a conservative estimate. - Conservative. So $2,000 per household, and that's basically in like the most direct costs that we can think of when it comes to the war having an immediate impact, as you say, on oil prices. Also, interest rates that mortgage rates are now skyrocketing again. Where does this leave the federal reserve? Because as you say, their mandate has been, we're going to raise, or the last decision was to raise rates. But at the same time, that can also be a problem if you're trying to pay down a mortgage and your rates are rising as a result of higher rates and therefore higher yields. I mean, where does this leave the Fed? What are they supposed to do at this point? - Well, it sounds like they're going to raise rates more. I mean, they increased rates back in September. There was another meeting in a couple of weeks. And markets are now putting a kind of close to 50/50 chance that they raise rates in October. But if not, certainly by December. And then markets are anticipating two or three more rate cuts, excuse me, rate increases next year. So if you listen to all the conversation coming from the Fed and what they're saying and take a look at the minutes that from the last meeting and try to divide and kind of where they are based on all this communication we are receiving, does feel like they're ready to step on the breaks again. And they're thinking the kind of consensus view, seemingly is that they don't want this inflation, which is due to the war to become more entrenched and much more difficult to ultimately ring out. So they're kind of trying to head off that possibility at the past before that actually happens. I mean, in my own view, I'd be more focused, at least put more weight on what's going on in the labor market, going back to full employment. And I don't quite understand how raising rates is going to solve the problems of inflation created by the Iran War. That's not going to be solved by higher rates. So I probably would be a dissenture, but it's a committee with lots of views. And those views hold that the Fed's going to continue to raise rates as long as inflation remains a problem. - Something that we were thinking about, just our research team offline. I mean, the last time that we had what people generally agreed was a very difficult economy was probably 2022 when you had extremely high inflation coming out of COVID. I mean, that was the last time where I feel like a lot of people kind of agreed, like this is a very difficult time to be an American consumer. but it seems like we're now coming close to that. And I wonder how this moment in 2026, given what we're seeing in inflation, but also significantly lower job openings than that period of time, like how does this compare compared to like the the past five or so years, where is our economy when you look at the look at recent history? Well, it feels very vulnerable to me. Again, I mean, the kind of top line numbers, you look at GDP grows, you look at the unemployment rate, you say, okay, you know, the stock market has been rocketing higher. You know, you look at those things, you say, it feels okay, but you know, just despite that feels highly vulnerable, very fragile, I think would be the right word. I mean, how can it be, how can you consider the economy healthy when people's real purchasing power is actually declining? And it just that doesn't or how can it be that you feel good about the economy if no one's hiring? So no one's lying off, that's great, because if it did, we'd be in recession, but if you don't lose your job, because if you lose your job, it's going to be very difficult back to get back into the labor market. And of course, we all focus on the equity market, but for most Americans, it's about their home and house prices haven't gone anywhere for three to four years, maybe not even longer than that. So I don't know, I mean, we should be able to navigate through if we could just get out of our own way, but you know, it feels like there's a lot of risks there and we're quite vulnerable because the economy is very fragile. All right, Mark Zandee is chief economist at Moody's analytics. Mark, I always appreciate your time. Thanks, Ed. Another day, another corruption scandal in Washington, this time involving the U.S. derivatives regulator. According to a new report from Bloomberg, investigators at the CFTC were ordered to retract their analysis of potential insider trading that was related to the president. Their investigation came after billions of dollars worth of oil trades were executed right before Trump announced that he would be pulling back on missile strikes on Iran. Those trades were so unusually successful as to be quite suspicious, which is why the CFTC then did its job of finding out if the traders knew something that the rest of us didn't. But right in the middle of that investigation, a senior advisor at the agency told them to stop. He said, "Retract the referral, throw it away." And that was an order that has supposedly never been given at the CFTC before. In other words, someone higher up told these guys, "Don't touch this. I wonder why." The craziest part, though, is that this isn't the first time that this has happened in this administration. Over at the SEC recently, another investigator was told to stop looking into the Trump family. Her name is Margaret Ryan. And by the way, right after she was prohibited from pursuing an investigation, she mysteriously left the SEC. Over at the DOJ, a similar event occurred. Gail Slater tried to investigate a merger that had compromising relationships with the Trump administration. She was immediately overruled. Her deputies were fired. And soon enough, she was mysteriously ousted as well. So not only do we have a scandal today that rivals watergate in terms of the scale and the scope of the corruption and the attempt to cover it up, we don't just have that scandal. We have three of them. And each of them tells the exact same story. blatant signs of corruption by the president, followed by an attempt to investigate it, followed by the investigation getting shut down. And in some cases, people getting fired. So what more evidence of corruption do we actually need? Now, this story should be front page news. But unfortunately, it isn't because the world is focused on Iran and AI and the midterms. You name it. But I said it yesterday, and I will say it again today, we are not going to stop talking about this. It is too egregious, too corrupt. And I'm sick of pretending that any of this is normal. This is the most corrupt administration in the history of America. And the only thing that will make things right is to start putting people in jumpsuits. Why? Because that is how we punish criminals. And if we think that we live in a fair society, if we think that we still live in the same America that existed decades ago, well, then we cannot keep making exceptions. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Gellon, Cristina Donahue and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Profty Markets from Profty Media. If you liked what you heard, give us a follow. I'm Ed Lson, tune in tomorrow for our conversation with Leaket Ahmed.