Musk shouted that his computing power was exhausted, and the CoreWeave (CRWV.US) bond market was breathing, but it still needed to triple the yield on US bonds

According to Woofun AI, Elon Musk sent a signal to the market on Tuesday night that the global artificial intelligence computing power had been exhausted. This assertion directly caused the CoreWeave bond market to take a brief respite on Wednesday, but the strong performance of SpaceX (SPCX.US) did not eliminate the deep financing difficulties faced by CoreWeave.

Data compiled by Woofun AI shows that although the CoreWeave bond market is showing signs of stabilization, the risk premium is still high. The 9.625% interest rate bond due in July 2032 traded at a fixed price of 80.5 cents per dollar on Wednesday, roughly the same as Tuesday's closing price, and recorded a yield of 14.68% to maturity. Compared to the intense turbulence of the previous few weeks, this performance was seen as favorable, but investors' pricing of risk did not loosen. In comparison, the yield on Wednesday's 5-year US Treasury bonds was 4.92%, and the 7-year term was 5.01%. As a lessor of scarce technology resources, CoreWeave needed to pay almost three times the interest rate of the former, and the annual interest burden was nearly 10 percentage points (about 976 basis points) higher.

Other maturity bonds also showed similar characteristics: 9% interest bonds due in February 2031 traded at around 83 cents per dollar, yielding 14.44%; 9.75% interest bonds due October 2031 yielded about 15%. Credit default swaps (CDS) data confirm this trend. As of October 19, CoreWeave's CDS cost was around 1,100 basis points per year, usually associated with struggling borrowers. S&P Global (SPGI.US) gave CoreWeave a B rating, and Moody's (MCO.US) gave a B1 rating, all of which are highly speculative categories.

Space Exploration Technologies (SPCX.US) announced its third quarter results on Tuesday. In a conference call, Elon Musk emphasized that demand growth far exceeds supply, saying that large technology companies and dozens of small companies are continuously pressured to rent more computing power. If all requests are met, business volume can increase several times, so there is no problem of insufficient demand. The news propelled SPCX stock up 9.1% to $161.30 on Wednesday, hitting an intraday high of $166.18.

CoreWeave shares also rose in early trading. They rose 2.35% before opening and 3.9% to $64.58 after opening, but the increase did not last an hour, then fell back to a minimum of $59.31, and eventually fell 1.13% to $61.43. The CoreWeave business model relies on borrowing capital to buy chips and build data centers, then rent them out to artificial intelligence developers through multi-year contracts to repay debts. Elon Musk's remarks favored the second step, but bondholders are still stuck with the high costs of the first step. With bond yields as high as 15%, building a new data center requires a greater effort to cover interest. Goldman Sachs (GS.US) this week predicted that as long as new project returns are attractive, CoreWeave's average borrowing cost could rise by 100 to 200 basis points.

Notably, Goldman Sachs, which gave this optimistic judgment, was its customer SpaceX, which generated $1.6 billion in revenue for artificial intelligence infrastructure in the second quarter through its cloud services business and sold the same products as CoreWeave.

Institutional rating adjustments and market differences further highlight CoreWeave's valuation pressure. Goldman Sachs upgraded CoreWeave's rating from “neutral” to “buy” on Monday, but the target share price was lowered from $139 to $106; HSBC Bank (HSBC.US) maintained its “underweight” rating with a target share price of $39; and Piper Sandler (PIPR.US) lowered its target share price from $153 to $124 on Wednesday. Analyst James Fish pointed out that AI cloud service companies can support development through customer prepayments, chip-secured loans, and cash flow from signed contracts, but warned that unless the industry's free cash flow improves and borrowing costs fall, the pressure will remain the same. The bond market has made a decision: Despite CoreWeave's resource advantages, investors are unconvinced of its ability to continue to bear high operating costs.