Nvidia Backs CoreWeave as Gartner Warns $4T AI Write-Down Risk

Nvidia Corp. chief executive Jensen Huang is publicly backing CoreWeave Inc., a debt-laden cloud computing firm at the center of fresh doubts about the artificial intelligence investment boom.

“CoreWeave’s strength is improving every day,” Huang told Bloomberg, adding that the chipmaker’s cost of capital is actually decreasing. Nvidia is a CoreWeave shareholder.

The comments came as CoreWeave’s shares tumbled and its credit default swaps surged, raising questions about whether trillions of dollars in AI spending will pay off. CoreWeave CEO Mike Intrator told employees in a memo that markets can “misunderstand and act irrationally” and that the company’s deal backlog is sufficient to cover its debt obligations.

Yet analysts at Gartner on Wednesday issued a stark warning: AI data center owners need to generate a cumulative $8.5 trillion in revenue through 2030 to cover capital spending, financing costs, and a 12% return. Total enterprise and consumer AI revenue headed to data centers will be only $3.6 trillion at most, leaving more than $4 trillion in asset value exposed to write-down risk through 2032.

On Friday, Bank of America analysts said the AI investment boom is following a classic capital cycle, which usually end in disappointment “even though the underlying technology often lived up to expectations.” Early profit margins tend to be high, driving overinvestment and excess capacity while attracting more competition.

In AI’s case, competition has already ramped up, especially from Chinese open-weight models. Business spending on AI has also started to dip, as higher token volumes fail to offset lower prices for tokens.

“This monetization disappointment in the face of intense competition is precisely the failure mode seen in past capital cycles,” Bank of America added.

Borrowing costs have jumped as geopolitical tensions and oil prices sent bond yields to their highest levels in more than 20 years. The Federal Reserve is also hiking rates again to rein in stubborn inflation.

That’s put more scrutiny on the riskier areas of the AI boom, which has grown increasingly reliant on issuing debt via the bond market.

Dan Greenhaus, strategist at Solus Alternative Asset Management, said CoreWeave’s unsecured debt has been especially targeted, calling it “the riskier of the riskier AI buildout play.” But he doesn’t see it as proof of an imminent bust.

“How many canaries have we killed in the coal mine over the last three years as everybody has latched on to every new sign of weakness so to speak as evidence that the bull market was about to end only to see the broad market, both tech and otherwise, go on to make new highs?” Greenhaus told CNBC on Friday.

He noted that earnings from AI chip suppliers like Taiwan Semiconductor indicate the broader demand environment remains robust. Still, he doesn’t expect companies across the AI ecosystem will be able to keep financing themselves indefinitely as rates go higher.

“I don’t know whether this is the breaking point or another 25 or 50 basis points higher is the breaking point,” Greenhaus explained.

For its part, CoreWeave said it has strong demand.