Episode summary
CoreWeave Stock: Why Its Bonds Just Hit Distressed Levels
Summary
The host says the biggest signal in markets right now is not inflation but stress in the credit markets, especially around data center financing tied to the AI trade. He argues that the end of a bull market is usually visible in the quality of paper being sold, comparing dot-com stocks in the 1990s and mortgage debt in the 2000s to today’s data center debt.
He says two warning signs are emerging: hyperscaler spending slowing down and companies struggling to raise money. On that view, CoreWeave’s bonds falling to 80 cents on the dollar, with default odds around 60% and yields near 15%, show the trade is beginning to unwind. He also points to weaker pricing in debt tied to Blue Owl and Meta’s Hyperion project, Hut 8 deals backed by Nvidia leases, and Blackstone’s Project Excalibur leased to Microsoft.
The host calls the selloff healthy, arguing that prolonged low rates encourage reckless behavior and misallocated capital. He says the market is forcing discipline on overleveraged data center projects, and he is not calling a full bear market yet because earnings remain strong. For investors, his main advice is to avoid speculative trades, trim risk, and focus on better-priced opportunities.
Key takeaways
- The host says CoreWeave’s bonds at 80 cents on the dollar and yields near 15% show distress in the AI/data center credit trade.
- He argues that data center financing is now the riskiest paper in the market, replacing dot-coms in the 1990s and mortgages in the 2000s.
- The host says the first warning sign is slowing hyperscaler spending, and the second is an inability for companies to raise money.
- He thinks the selloff is healthy because market discipline is forcing lenders to demand better terms from overleveraged projects.
- He says he is not calling a full bear market yet because earnings are still too strong for that.
Notable quotes
“You can always tell the end of a bull market by the quality of paper being sold”
“And the paper today, really, that's most at risk, you know, kind of the riskiest paper, really is data center paper”
“One of them is hyperscaler spending slows down. That would tell you that the AI trade is unwinding”
“Well, we're watching that start to happen in the data center trade”
“CoreWeave credit hit a risk of default, 60% odds of default, sold down to 80 cents on the dollar, which are prices that are typically considered distressed”
How the episode opens
Good morning. This is Dolan Jovito behind the markets. Happy Monday.
Tonight is Monday, October 19th. TGIM. Today I'd like to talk about what's happening in the credit markets and how it's affected the AI trade over the past week.
It's very important information for us here as investors. And let me put a little context on this. I've said this many times over the years.
Those who've listened to me for the last 8, 10, 20 years, you've heard me bang this drum a bunch of times. You can always tell the end of a bull market by the quality of paper being sold. And in the '90s, that paper were dot-com companies going public.
And at the top of that market was companies like pets.com going public. The market popped. The bubble popped after that.
In the 2000s, the paper of that day were mortgages, collateralized mortgages, pooled mortgages, all that stuff. That paper began to really be sour, you know, really filled with a lot of garbage, no income loans, etc., etc. And the paper today, really, that's most at risk, you know, kind of the riskiest paper, really is data center paper.
And, you know, I've said this, you know, many times here. I've said it a few times on this very channel here that you'd see two warning signs coming up and that you have to keep your eye out for two warning signs. I said this recently.
One of them is hyperscaler spending slows down. That would tell you that the AI trade is unwinding. Or you see an inability for companies to raise money.
Basically, nobody wants their paper. Banks or creditors balk at lending company ABC money. Or they charge such high rates that it makes doing any more projects unsustainable.
Well, we're watching that start to happen in the data center trade.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- distressed corporate bonds
- data center financing
- hyperscaler spending slowdown
- default odds and bond yields
- rising bond yields normalizing rates
Companies and tickers mentioned
- NBIS
- META
- OWL
- HUT
- NVDA
- BX
- MSFT
- CoreWeave
- Nebius
- Meta
- Blue Owl
- Hut 8
- Nvidia
- Blackstone
- Microsoft
Watch the episode
Watch “CoreWeave Stock: Why Its Bonds Just Hit Distressed Levels” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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