Artificial Intelligence Firms Face Huge Debt Burden

According to the Economist, investors are increasingly concerned that leading AI companies will not be able to produce the cash flows needed to service their massive debts. This concern is fueled by the growing debt burden of these companies, which is becoming increasingly opaque and risky.

CoreWeave, a company that leases data center infrastructure to AI models, has seen its five-year bond price drop by 16% since July, with its yield now at 15%, similar to companies facing financial difficulties. The cost of credit default swaps for CoreWeave suggests that the probability of the company defaulting on its debts over the next five years has exceeded 60%.

In addition to CoreWeave, other ’neocloud’ companies, such as those listed on the stock exchange, are also causing concern. Of the ten listed companies, only two are profitable, with a total debt of $100 billion, triple their annual earnings. This debt includes $57 billion issued this year.