Selling pressure is spreading across AI-related stocks as credit risk rises at AI infrastructure firm CoreWeave.

On Oct. 15, CNBC reported that CoreWeave's five-year credit default swap (CDS) spread topped 1,140 basis points during the session and later stood at 1,088 basis points. That was up 33% from a week earlier and 177% from a year earlier.

A CDS is a contract that transfers risk in case of default, and a higher spread means higher credit risk as assessed by the market. Gavan Nolan (가반 놀런), head of fixed income pricing at S&P Global Market Intelligence, said a CDS spread above 1,000 basis points can generally be seen as a signal of serious credit risk.

The strain stems from borrowings taken on to expand AI infrastructure. The company has taken on more than $51 billion in debt and financial obligations to buy chips, build data centres and expand its computing resource leasing business. The yield to maturity on its 9.75% corporate bonds due in 2031 rose to as high as 15.78%. A rise in bond yields means bond prices fall.

The stock also wobbled. CoreWeave plunged 15.5% the previous day and fell again on Oct. 15. Other neocloud companies Nebius and IREN fell 5% and 8%, respectively. Micron Technology and AMD also fell 4% and 6%, respectively, and anxiety spread across AI-related stocks amid the fallout from a sharp drop in South Korean semiconductor shares.

The market's central concern is cash flow to support large-scale investment rather than demand for AI services itself. Nolan said CoreWeave has contracts with major hyperscalers, so demand for its services is not in doubt, but the key question is when cash flow will actually come in. With free cash flow posting a large deficit, he said cash must come in to justify large capital spending.

Evercore ISI's trading desk assessed that the market is effectively putting the brakes on AI debt not supported by operating cash flow. In response, CoreWeave Chief Executive Mike Intrator (Mike Intrator) said in an internal memo that there may be times when the market misunderstands the situation and reacts irrationally as the company builds a new type of technology firm. He stressed that an order backlog of more than $100 billion is more than sufficient to support all debt obligations.

Deutsche Bank also analysed that CoreWeave's order backlog exceeds $100 billion, with about two-thirds in contracts with investment-grade counterparties such as Microsoft, Meta, IBM and Caterpillar. It also maintained its existing buy rating.

Some also raise the possibility that credit concerns could spread to other companies. Jim Reid (짐 리드), head of global macro and thematic research, warned that anxiety could become self-fulfilling and cause problems for other AI-related companies. Oracle's five-year CDS spread rose to 288 basis points this week, up more than 12% from a week earlier. Reid pointed out that if Oracle's credit rating falls below BBB, forced selling could occur by investors who can hold only investment-grade bonds.