CoreWeave Stock Plunges as AI Sell-Off Deepens

CoreWeave and other Artificial Intelligence-linked companies came under renewed pressure as rising US inflation intensified concerns about further Federal Reserve interest rate increases, triggering a broader sell-off across Technology Stocks and global markets.

The latest market turbulence followed hotter-than-expected US inflation figures for September, which revived speculation that the Federal Reserve could raise interest rates again in October. At one point, futures markets indicated roughly an even chance of another increase, adding to uncertainty for investors already concerned about stretched AI valuations and the borrowing costs of highly leveraged technology companies.

Shares in data center operator CoreWeave and cloud computing giant Oracle fell sharply on Wednesday, while credit default swap (CDS) costs linked to their debt surged. The sell-off also weighed on semiconductor companies and other technology stocks, pushing the S&P 500 down by more than 1%.

CoreWeave Faces Mounting Pressure as AI Stocks Slide

CoreWeave became a focal point of the latest market downturn as investors reassessed the risks associated with companies heavily exposed to the artificial intelligence investment boom.

The company operates data center infrastructure used to support demanding computing workloads, including AI development and deployment. Its growth prospects are tied to continued demand for computing capacity, but its capital-intensive business model also makes financing conditions and investor confidence important considerations.

According to Reuters market commentary, CoreWeave shares plunged approximately 15% on Wednesday, while Oracle stock dropped around 10%. Both companies also experienced sharp increases in the cost of credit protection as investors sought to hedge their exposure to the AI sector.

CoreWeave’s credit default swaps rose above 600 basis points on Wednesday before surging past 1,000 basis points early on Thursday, according to the report.

Credit default swaps are financial contracts that provide protection against the risk of a borrower failing to meet its debt obligations. Rising CDS spreads generally indicate that investors perceive greater credit risk or are demanding more compensation to insure against potential losses.

The sharp increase in CoreWeave’s CDS spreads highlighted growing concerns about highly leveraged companies participating in the AI infrastructure boom.

Hot US Inflation Revives Federal Reserve Rate-Hike Fears

The immediate catalyst for the market sell-off was the release of September US inflation data showing stronger-than-expected price pressures. Both headline and core inflation figures heightened concerns that the Federal Reserve might need to maintain restrictive monetary policy for longer or consider another rate increase.

Markets briefly priced in approximately a 50% probability of an October rate hike, reflecting a significant shift in expectations following the inflation report.

Some market participants also raised the possibility of a larger rate increase in December, with speculation reaching as much as 50 basis points. However, these figures reflected market expectations rather than a confirmed decision by the Federal Reserve.

Federal Reserve Chair Kevin Warsh was expected to draw attention when speaking at an International Monetary Fund meeting in Bangkok on Friday, with investors looking for clues about the central bank’s response to persistent inflation.

Higher interest rates can weigh on technology companies by increasing borrowing costs and reducing the present value investors assign to expected future earnings. These effects can be particularly significant for businesses whose valuations depend on substantial growth over many years.

AI-Linked Debt Risks Spread Beyond Technology Stocks

The pressure on CoreWeave and Oracle reflects broader questions about the financing of the AI investment boom. Building and operating large data centers requires substantial spending on computing equipment, infrastructure, power and supporting facilities.

Companies investing heavily in this infrastructure can face greater financial pressure when borrowing costs rise or investors become less confident about the speed at which AI-related spending will translate into revenue.

Investors are also examining whether the growth generated by AI investments will justify the large sums being committed to the sector. Concerns about revenue growth, high valuations and debt exposure have contributed to the recent weakness in AI-linked equities.

The increase in CDS spreads suggests that credit markets are also reassessing risks rather than focusing exclusively on share prices. If financing becomes more expensive, heavily indebted companies could face additional pressure even if demand for AI computing remains strong.

Asian Markets Suffer as Global Technology Sell-Off Intensifies

The downturn extended into Asian markets on Thursday, where technology-heavy indices recorded substantial losses.

South Korea’s Kospi plunged more than 7%, while Japan’s Nikkei fell approximately 5%. The declines followed renewed selling in US technology stocks and growing concern about the outlook for interest rates and AI-related investments.

The weakness highlighted how closely connected global markets have become to expectations surrounding US monetary policy and the performance of major technology companies.

US banking shares also remained under pressure after a series of disappointing earnings reports during the week added to concerns about the broader market outlook.

Treasury Yields Retreat as Investors Seek Safety

US Treasury markets displayed an important shift during the latest sell-off. Bond yields initially climbed following the inflation report as investors considered the possibility of another Federal Reserve rate increase.

Yields subsequently retreated sharply as technology stocks came under pressure. The reversal suggested that some investors were moving towards the perceived safety of government bonds amid fears of a deeper equity market correction.

This pattern illustrates the competing forces affecting financial markets. Strong inflation can push bond yields higher by increasing expectations for interest rates, while a sharp decline in equities can encourage investors to seek safer assets, potentially pulling yields lower.

Oil Prices Remain Elevated Amid Geopolitical Tensions

Energy markets offered limited relief to investors concerned about inflation. Brent crude traded around $104 per barrel early on Thursday after easing slightly, remaining at an elevated level amid geopolitical uncertainty.

The Trump administration was considering easing sanctions on so-called shadow fleet vessels that have transported oil and refined products from countries including Russia, Iran and Venezuela. Any change could potentially increase the availability of shipping capacity and reduce some transportation costs, although the effects on global oil prices remain uncertain.

Meanwhile, tensions involving Ukraine, Russia and Iran continued to complicate the energy outlook.

Ukrainian President Volodymyr Zelenskiy criticised what he described as favourable treatment of Russia by US President Donald Trump. Ukrainian officials also complained that they had not received US early-warning alerts about incoming Russian ballistic missiles in recent days and said the military version of Elon Musk’s Starlink satellite communications service had been slowed across the country.

Ukraine resumed attacks on Russian refineries, developments that could complicate efforts to ease sanctions on Russian diesel exports and influence fuel prices ahead of the US midterm elections.

In the Middle East, a container ship sank after a mine incident in the Strait of Hormuz, while Yemen’s Iran-aligned Houthis struck the headquarters of Saudi Aramco. The developments added to concerns about the security of energy infrastructure and shipping routes.

Key Economic Data and Corporate Earnings in Focus

Investors are preparing for additional economic releases and central bank commentary that could influence expectations for US interest rates and financial markets.

Key US data scheduled for Thursday include September producer prices, retail sales, August business inventories and weekly jobless claims. October business surveys from the Federal Reserve banks of Philadelphia and New York are also due.

Cleveland Federal Reserve President Beth Hammack and Chicago Fed President Austan Goolsbee are scheduled to speak, potentially providing further insight into policymakers’ assessment of inflation and economic conditions.

European Union leaders are meeting in Brussels as geopolitical tensions remain in focus. Corporate earnings from Bank of New York Mellon, PNC, Charles Schwab, Prologis, US Bancorp and Marsh & McLennan are also expected to attract investor attention.

What the CoreWeave Sell-Off Means for AI Investors

The latest decline underscores the risks facing investors in AI-linked companies as inflation, interest rates, valuation concerns and debt exposure converge. CoreWeave’s falling share price and soaring credit protection costs show how quickly sentiment can shift when investors become less comfortable with highly leveraged growth strategies.

The long-term outlook for AI infrastructure will depend on demand for computing capacity, revenue growth and companies’ ability to manage the substantial costs of expanding their operations. However, continued inflationary pressure and the prospect of higher borrowing costs could make it harder for some businesses to meet investor expectations.

For now, markets are balancing optimism about AI’s long-term potential against concerns about financing risks and the possibility of tighter monetary policy. The next round of US economic data, Federal Reserve signals and corporate earnings could help determine whether the sell-off deepens or investor confidence begins to recover.