Credit Crash In AI Names

Equity can be euphoric, but credit never lies for long.

When I first wrote about CoreWeave in July, in One Tech Stock I’m Hell Bent on Avoiding, I said that something about this company simply didn’t smell right to me.

I described how its IPO seemed forced out the door on life support, rescued by a $250 million order from Nvidia that prevented what would have otherwise looked like an outright failure. I pointed out that the relationship between the two companies—one serving as the other’s largest supplier, customer, and shareholder all at once—was the kind of circular, self-referential structure that markets tend to misunderstand right up until they suddenly don’t.

Since then, we’ve seen nothing but more circular relationships.

Over the past six months, Nvidia, OpenAI, Microsoft, and CoreWeave have formed a tightly interlinked web of circular investments and supply agreements. Nvidia pledged up to $100 billion to OpenAI, which in turn will buy massive amounts of Nvidia hardware; OpenAI restructured its Microsoft deal to keep Microsoft as both a major investor and cloud supplier while gaining flexibility; and OpenAI also signed a $12 billion infrastructure contract and took an equity stake in CoreWeave—another Nvidia-backed company that sells GPU cloud capacity and has a $6.3 billion guarantee deal with Nvidia.

The result is a self-reinforcing ecosystem where each firm simultaneously acts as investor, customer, and supplier to the others. And now, the credit market seems to be catching up to what the equity market has been willfully ignoring.