Mike Intrator, the founder and CEO of CoreWeave, was photographed during the company's initial public offering at the Nasdaq headquarters in New York on March 28, 2025. The week turned out to be tumultuous for AI infrastructure, marked by significant market shifts. Neoclouds experienced a severe downturn, and there was a notable spike in credit default swaps. Meta reported negative cash flow, and SK Hynix's Solidigm unit decided to cancel its planned IPO. Following a challenging day for the Nasdaq on Thursday, the index continued its downward trend into Friday, concluding the week with a 0.7% drop. Among the major tech players, Alphabet faced the biggest decline, with its shares plummeting by 6% as investors braced for the company's third-quarter earnings report coming next week. Microsoft and Amazon also saw a decrease in their stock prices, albeit by less than 1%. Although the tech sector has not undergone a drastic sell-off across the board, cracks are beginning to appear within the AI infrastructure segment. Companies like CoreWeave, Nebius, and IREN saw their stock values fall sharply this week, each losing over 30% in October alone. Notably, CoreWeave's credit default swap spreads have widened to over 11%, a sign often associated with financial distress, forcing investors to pay more for protection against potential defaults. Additionally, the yields on CoreWeave's unsecured notes set to mature in 2031 and 2032 exceeded 15%. Roundhill Investments CEO Dave Mazza remarked that investors are indiscriminately devaluing all neocloud entities.
The unease isn't confined to the American market. Elice Group, a South Korean cloud company, saw its shares drop 30% on their debut, while Australia's NextDC suffered a massive 39.5% decline after it revised its annual earnings forecast downwards. The past few years have seen AI optimism power the market as a surge in demand for advanced models and services has prompted major tech firms to invest heavily in infrastructure. Yet, skepticism is growing, with analysts from Gartner forecasting that as many as 80% of neocloud companies could shut down or be absorbed by 2030. Despite the concerns, Nvidia CEO Jensen Huang, a leading advocate for AI, remains optimistic. At a conference in Berlin, he stated that demand for neocloud services is exceptionally high: "The demand for capital far exceeds the availability," Huang told CNBC's Arjun Kharpal, assuring that this imbalance will be resolved.
On Wall Street, there are lingering doubts. SK Hynix, a significant player in the memory market, has withdrawn its IPO plans for its U.S. subsidiary Solidigm, citing market volatility as the reason. SK Hynix had acquired Solidigm, which specializes in NAND and SSD storage solutions for data centers, from Intel in 2021. The company expressed that while the IPO could have alleviated investment pressures and boosted shareholder returns, the current market conditions necessitated a reevaluation. Despite the unrest, the largest tech firms continue to hold their investment-grade ratings, even as they ramp up expenditures, including through debt financing.
In related news, Meta's stock fell by 7% following a report of negative free cash flow exceeding $2 billion in the third quarter, in conjunction with an increased full-year capital expenditure projection from $130 billion to $135 billion. The company also outlined plans to invest approximately $825 billion over the coming years, with over $450 billion tied to non-cancellable take-or-pay agreements. As a result, spreads on Meta’s five-year credit default swaps surged to historic highs of over 124 basis points. Additionally, Nvidia and Oracle also experienced record-setting credit default swap spreads, reaching 126 and 343 basis points respectively. Oracle has seen its stock decline by more than one-third this year and now faces potential risks of a credit rating downgrade. John Williams, head of the derivatives practice at Milbank LLP, indicated that investors are exploring various risk management strategies beyond simply purchasing credit default swaps in light of the AI sector's dynamics. "With substantial investment flowing into this domain, it’s essential to explore appropriate risk management tools, regardless of one's market outlook," he stated. Portfolio manager Brian Stutland of Equity Armor Investments summed it up by expressing concerns over how AI's influence might ripple throughout the broader market, likening it to dropping a bowling ball in water and provoking waves across the Nasdaq.
