AI credit stress deepens as CoreWeave bonds turn distressed and tech selloff puts earnings in focus

The AI selloff moved from stocks into credit last week, and the damage is now visible in the bond market. CoreWeave, the GPU cloud provider that has accrued $72 billion in liabilities to operate 51 data centers, saw its bonds crash, with investors placing a more than 60 percent likelihood the company would fail to meet its obligations, according to a New York Times report published October 17, 2026. ATB Wealth's weekly update, dated October 19, 2026, adds detail sourced to Bloomberg: some of CoreWeave's fixed-rate senior unsecured bonds, maturing between 2030 and 2032 and rated B by S&P, plunged below 80 cents on the dollar, yielding between 14.6% and 15.5%. Its five-year credit default swap priced in a greater-than-50% chance of default within five years.

The stress is not isolated. CNBC reported on October 19, 2026 that investors in the corporate bond market have started to shun CoreWeave, with its credit default swaps reaching distress levels. Goldman Sachs traders noted on Friday that AI credit spreads and hyperscalers specifically are at the widest levels of the year, and that the last time spreads were nearly this high, the underlying equities were 15% lower. The traders added that the widening has forced investors to confront what happens as AI spending growth slows, with AI capex likely peaked and financing, sustainability and returns on capital now the debate rather than near-term earnings revisions. The New York Times reported that bonds of other AI giants, including Oracle, have also sold off, though less steeply, and that investors have been bidding up instruments insuring SoftBank's debt against default.

The equity market felt the same pressure. The S&P 500 lost nearly 2% last week, its biggest weekly decline since late June, while the Nasdaq tumbled 4.5%, snapping a four-week winning streak, per CNBC. Information technology shed more than 6%, its worst weekly performance since April 2025, and Goldman Sachs data showed hedge funds selling the largest percentage of tech on record dating back to 2016. CoreWeave shares ended the week 25.21% lower on profitability concerns tied to the AI buildout, with other neoclouds including Nebius and IREN following suit. On Monday, October 19, the Nasdaq Composite rose 1.4% and the S&P 500 gained 0.7% as traders bought the dip, though CoreWeave rolled over to just below flat by mid-morning.

Rates are a key part of the story. ATB Wealth reported that September headline CPI rose 3.7% year over year, above the 3.6% consensus and driven mainly by gasoline prices, while PPI final demand climbed 6.3% on elevated fuel input costs. Swap markets responded by pricing an 84% probability of a 25-basis-point rate hike at the Federal Reserve's December meeting. The 10-year Treasury yield moved 15 basis points lower to close the week at 5.08% as some investors sought safety, and on Monday the 10-year traded at 5.0854% with the 30-year at 5.4242%, per CNBC. JPMorgan strategist Mislav Matejka wrote that stabilizing yields would help equities by reducing pressure on AI funding and consumer finances, noting that during the most intense phase of yield spiking, forward P/E for the S&P 500 fell by 3 points.

Energy costs are feeding directly into the inflation picture. Ukraine hit an oil terminal in St. Petersburg on Sunday, and two tankers were attacked off the coast of Saudi Arabia in the Persian Gulf on Friday, according to CNBC. Brent crude slipped 1% to $108.80 per barrel in early Sunday trading, while U.S. oil lost 0.2% to $101.18. ATB Wealth noted that escalating attacks on Saudi oil infrastructure sent WTI above $100 per barrel, driving energy sector gains for both the TSX and S&P 500. Longer-dated oil futures have begun to ratchet higher on expectations that energy infrastructure disruptions may last well into 2027, which keeps pressure on the inflation and rate expectations that are squeezing leveraged AI borrowers.

The week ahead shifts attention to earnings. Meta Platforms, IBM and Tesla report Wednesday, per ATB Wealth's calendar, and CNBC noted a slew of results from major companies including Meta and Tesla hits the Street this week, with optimism those results will stabilize the market. Bank earnings last week offered a mixed preview: JPMorgan Chase missed profit expectations for the first time in nearly three years, with CEO Jamie Dimon warning of sticky inflation, while BlackRock rose 0.7% as earnings jumped 38% and assets under management hit a record $15.5 trillion. ATB Wealth also flagged that nearly 40% of debt held by Russell 2000 companies excluding financials is floating-rate, a reminder that smaller, more leveraged firms feel rate pressure first.

The through-line is that AI financing has become a credit question, not just an equity one. Goldman's traders framed it plainly: pessimism is increasing, market breadth is low, and Friday saw the second highest amount of puts traded this year, behind only June. ATB Wealth concluded that CoreWeave's move into distressed, high-yield territory raises broader questions about the sustainability of highly leveraged AI infrastructure financing models, driving risk aversion across non-investment grade AI cloud and data center developers. Whether Meta and Tesla results can stabilize sentiment, or whether credit spreads keep widening, will shape the next leg for the AI trade.