TradingKey - CoreWeave (CRWV)'s stock and bond volatility is becoming a major stress test for the AI infrastructure market, while putting its deep partnership with Nvidia (NVDA) under scrutiny once again.

CoreWeave's stock plunged about 15% on Wednesday, with its corporate bond prices falling in tandem as market concerns mounted that high interest rates and massive debt could weaken its ability to continue expanding AI data centers. The sell-off subsequently spread to AI cloud computing and data center-related stocks such as Nebius (NBIS), Oracle (ORCL), IREN (IREN), and TeraWulf (WULF), dragging down Nvidia as well.

In response to market doubts, Nvidia CEO Jensen Huang publicly stated in Stockholm on Thursday that CoreWeave is growing stronger, its cost of capital has actually decreased, and there is no need for Nvidia to provide a financial backstop for the company. These remarks alleviated some of the panic, sending CoreWeave's stock rebounding from intraday lows to close up about 5.9%.

Jensen Huang Backs CoreWeave as Bond Market Remains on High Alert

Jensen Huang's remarks sent a positive signal to equity investors, but credit market pressure on CoreWeave did not disappear in tandem.

ICE Data Services data showed that CoreWeave's five-year credit default swap spread once rose to 1,194.5 basis points, hitting an intraday record high. Based on relevant model calculations, market pricing implied a probability of default of over 60% over the next five years. However, this is merely a risk metric derived from assumptions such as bond recovery rates, and does not mean the company's actual probability of default has been accurately determined.

Prices of some of CoreWeave's long-term bonds have dropped to around 78 to 80 cents on the dollar, with yields exceeding 15%. The sharp rise in bond yields means that if the company needs to raise new funds or refinance existing debt through the bond market in the future, its financing costs could increase significantly.

CoreWeave's business model requires significant upfront capital investments to purchase GPUs and build data centers, while revenue is realized gradually as customers utilize computing power. According to market estimates, the company currently has over $40 billion in debt, and its free cash flow remains negative. If financing costs continue to rise, capital expenditures and interest expenses could limit the pace of profitability improvement, even if orders continue to grow.

Nvidia Is Both a CoreWeave Shareholder and a Major Supplier

CoreWeave's financial health affects Nvidia because the two companies share simultaneous equity, supply, and customer relationships.

In January this year, Nvidia announced a $2 billion subscription to CoreWeave common shares and expanded their long-term partnership. CoreWeave plans to build over 5 gigawatts of AI factories using Nvidia technology by 2030, with the relevant data centers employing Nvidia GPUs, networking equipment, and other computing platforms.

Nvidia currently holds approximately 47.2 million shares of CoreWeave, representing a stake close to 10%, making it one of its key shareholders. Meanwhile, CoreWeave is also a major buyer of Nvidia GPUs, operating under a business model of purchasing Nvidia chips to build computing clusters and renting the computing capacity to clients such as Meta and OpenAI.

This means that any financing hurdles facing CoreWeave would not only affect the value of Nvidia's equity stake, but could also slow down its future GPU purchases and data center construction. Even though Nvidia does not guarantee CoreWeave's debt, the latter remains a critical window for observing whether AI chip demand can translate into actual paying capability.

Bank of America analyst Tal Liani remains bullish on CoreWeave, setting a $140 price target. He believes that Nvidia and CoreWeave share aligned interests: CoreWeave requires Nvidia's chips and technical support, while Nvidia wants large AI cloud service providers to continue adopting its GPUs rather than shifting to AMD or other competing platforms.

How Much Will Nvidia Be Impacted? AI Demand Remains Key

Nvidia itself has a larger operational scale and a stronger foundation for profitability, so CoreWeave's risks do not imply that Nvidia will inevitably suffer an impact of the same magnitude. However, if an increasing number of AI cloud computing firms delay data center construction due to financing issues, expectations for Nvidia's GPU demand could still be affected. Conversely, if demand for AI computing power continues to outpace supply and emerging cloud firms can still secure customer orders, short-term financing pressure will not necessarily develop into an industry-wide demand crisis.

The challenges facing CoreWeave also reflect common weaknesses among emerging cloud computing companies. Unlike Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL), these companies lack massive operating cash flows and must rely on debt, equity financing, and long-term customer contracts to purchase GPUs, build data centers, and secure power. Once financing costs rise, expansion plans may be forced to slow down even if demand for computing power remains strong.

Gartner projects that by 2030, cost pressures and business model convergence could lead over 80% of new cloud service providers to become unable to continue operating independently. This does not mean that all of these companies will go bankrupt; rather, industry consolidation, acquisitions by major cloud platforms, or voluntary reductions in investment are more likely.

For Nvidia, short-term operational difficulties at CoreWeave will not necessarily alter GPU demand immediately. However, if similar financing pressures simultaneously emerge at Nebius, Oracle, and other data center customers, the market will re-evaluate how many of Nvidia's orders can be fulfilled as planned.

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