Episode summary
CoreWeave's Debt Is Cracking. AI Stocks Are Falling. So Why Is Andy Constan Watching Bond Issuance?
Excess Returns
· · 1 hr 5 min · Hosts: Jack Forehand, Justin Carbonneau · Guests: Andy Constan
Summary
Andy Constan argued that the AI boom has shifted large parts of the market from capital-light software models to capital-intensive infrastructure, which means the funding question now matters as much as demand. He said the buildout is being financed through debt, equity, and a web of customer commitments and backstops, with CoreWeave as the clearest example of a highly leveraged “neocloud” business facing pressure from rising marginal funding costs and competitive squeeze.
He pushed back on the idea that CoreWeave alone signals a systemic AI breakdown. In his view, the bigger risk is not immediate contagion but a slowdown in compute expansion and a hit to stock prices if expectations outrun the business reality. He said the major hyperscalers’ commitments are large in absolute terms but small relative to their balance sheets, making a broad financial crisis unlikely for now.
The second half focused on Treasury financing. Constan argued that buybacks, shorter bill funding, and any reduction in long-dated issuance can suppress long-term interest rates, lift asset prices, and potentially fuel inflation. He said the upcoming refunding decisions matter because they reveal whether Treasury is preserving market liquidity or actively leaning on the curve. He closed by saying he is positioned with some bonds and short equity exposure because he sees too much optimism, too much future growth claimed by too many assets, and higher rates staying elevated for longer.
Key takeaways
- Constan said AI has turned many businesses into capital-intensive operators that now need constant external funding, unlike the old software model.
- He argued CoreWeave’s 8% debt coupon is the key near-term fact, but the next marginal dollar of funding at 15% is what creates real pressure.
- Constan said the risk from neocloud stress is more likely a stock drawdown and a slower compute buildout than a systemic contagion event.
- He said Treasury buybacks and reduced long-duration issuance suppress long-term rates and effectively support asset prices.
- Constan said he expects 10-year yields to stay around 5% to 5.25% for the next 3 to 4 months, which he sees as a headwind for equities.
- He said the bull case for stocks rests on strong earnings, but he still prefers bonds and short equity exposure because expectations are too high.
Notable quotes
“the capex run rate is in the trill is about a trillion now where it had been dramatically less a third of that”
“the next marginal dollar is going to cost 15%”
“that seems very unlikely to me. These are companies while the numbers are growing rapidly”
“there's not enough pi and it's overallocated”
How the episode opens
Hi Andy, it's great to have you back on our monthly first principles discussion. Thanks again for joining us. — It's always a pleasure Justin, good to see you.
For those that may not know, you are founder of DampSpring Advisors where you analyze global macro markets, market liquidity, and the forces driving asset prices to help investors and allocators make better portfolio decisions and stay informed on the markets. And today I think we're going to talk through at least initially here talk through something that is at the heart of markets, the economy and investing and that's financing. Maybe something that doesn't get discussed enough in the markets but is on the top of a lot of investors minds today.
And we'll start with this sort of massive AI boom and how it's being funded. And then we'll look into something you've been you've been talking about that on X, but then something that you've been writing about is the US Treasury finances and our growing debt and just thinking about the cost and the availability of capital and how the the effect it has on everything from stocks, bonds, interest rate in the economy. So I think this is going to be a good discussion good at least initial first principles discussion around how to think about financing in today's market and where I wanted to start with you was um we've seen with AI and this capex buildout some increasingly creative financing structures and so when you see the AI financing happening when you see that how the build buildout is being funded sort of what stands out to you and what do you think investors should be paying attention Right.
So I think the first thing is um at the ver the highest level there is has been a shift.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai capex
- coreweave debt and bond yields
- treasury refunding and buybacks
- stock losses vs systemic crisis
- bond vs equity positioning
Companies and tickers mentioned
- CoreWeave
- Damped Spring Advisors
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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