• Stocks: Indexes rose as concerns about companies overspending on AI spurred investors to move out of the trade and seek options elsewhere.
• Bonds: Meanwhile, Treasury yields fell as investors picked up bonds amid the tech rout.
• Commodities: Crude oil prices gained as attacks on ships in the Strait of Hormuz threatened possible supply disruptions, while reports surfaced that the US may use the “mother of all bombs” to strike Iran.

Tech

Morning Brew, Inc.

Apparently, “all the money in the world” gets a little harder to find when the debt you already issued is flashing distress.

CoreWeave hopes to eventually earn an investment-grade credit rating, giving it access to much deeper pools of insurance money, co-founder Brannin McBee told the Financial Times this week in a quote he probably wishes he could take back.

The AI cloud-computing giant has relied heavily on debt to fund its breakneck expansion, just as investors are questioning how much more leverage the funding model can support. CoreWeave shares plunged as much as 17% Wednesday, while bonds due in 2032 sank to roughly 78 cents on the dollar. The cost of insuring its debt now implies about a 63% chance of default within five years, finds S&P Global data.

The result isn’t your ordinary AI stock selloff. Instead, it’s turned one of AI’s fastest-growing infrastructure companies into a stress test for a much bigger question hanging over the boom.

Debt keeps the GPUs coming

Renting out Nvidia-powered computing capacity to customers like OpenAI and Microsoft, CoreWeave’s business model requires enormous upfront spending on GPUs and data centers and relies on long-term contracts generating enough revenue to cover the bill.

That math gets tougher as borrowing costs rise. CoreWeave carries roughly $50 billion of debt, could spend as much as $39 billion on capex this year, and is still expected to lose more than $2 billion. The company says its backlog comfortably covers obligations, and Nvidia CEO Jensen Huang said he’s “optimistic” about its financial position.

But investors are less convinced. If financing gets too expensive, CoreWeave may have to slow its expansion even while demand for AI computing remains strong. Given CoreWeave is a major customer, Nvidia was also pulled into the selloff, falling 1.84% today. The Philadelphia Semiconductor Index has lost more than $1.6 trillion in market value during the recent rout.

Competing for everyone’s money

Although CoreWeave is just one company, AI infrastructure requires enormous amounts of capital. Gartner estimates that AI providers will spend nearly $1 trillion this year and another $6 trillion between 2027 and 2030, while warning that their revenue may not justify that spending.

Citi analyst Stephanie ​von Friedeburg says competition for capital is already showing up in sovereign debt markets, with some borrowers turning more aggressively to non-dollar bonds as funding tightens. That doesn’t mean your mortgage rate is rising because someone built another data center—but it does mean AI is becoming large enough to influence borrowing costs.

For investors, that changes what matters in the AI trade. Companies have to prove they can finance the buildout without crushing returns, giving cash-rich giants a different risk profile from debt-heavy players like CoreWeave. The bottom line: The next phase of the AI boom could come down to who can afford to keep spending.—HC

      

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Stocks

🟢 What’s up

• Walmart gained 1.46% following a Deutsche Bank upgrade to Buy that highlighted improving profit margins and the retailer’s appeal to inflation-weary shoppers.
• Nike rose 5.3% as investors rotated out of expensive tech stocks and into beaten-down consumer stocks.
• Intuit jumped 6.33% after announcing plans to acquire Sequence, an AI-powered revenue management platform.
• The RealReal surged 15.82% on a new $150 million loan and $25 million credit facility to refinance its existing debt.
• Crocs climbed 6.14% thanks to a Barclays upgrade that cited stronger product innovation, expansion into new categories, and international growth.
• eBay popped 5.16% after Morgan Stanley said its live commerce market “has started to take off in the US.”

🔴 What’s down

• TSMC slipped 1.76% despite beating quarterly earnings expectations, with net profit surging nearly 69% on booming AI chip demand.
• SpaceX fell 2.33% amid controversy over new Starlink speed restrictions in Ukraine and Elon Musk’s calls to replace Ukrainian President Volodymyr Zelenskyy.
• FMC Corporation plunged 30.53% after slashing its third-quarter revenue forecast to between $65 million and $125 million, far below Wall Street’s roughly $867 million estimate.
• Rocket Lab sank 6.64% following another delay to its Neutron rocket launch, now pushed back to 2027.
• Dell Technologies, HPE, and NetApp fell 6.84%, 7.2%, and 3.38%, respectively, on Barclays downgrades that questioned whether AI demand would translate into meaningful revenue growth anytime soon.
• Manpower plunged 15.84% after the staffing company missed quarterly revenue estimates and announced its first CEO change in 12 years.

Stat of the day

Sad boys club

Morning Brew, Inc., Photo: Adobe Stock

The executives could use a shoulder to cry on. New data from The Conference Board finds that they’re feeling just as glum about the economy as consumers are—with their confidence falling into the negative this month.

Published quarterly, the CEO Confidence Index takes the temperature of how top execs feel about economic conditions, along with what they expect for their industries in the next six months.

And executives have turned pessimistic: Confidence fell to 46%, down from 52% last quarter. What’s more, financial fatalism is way up—41% of CEOs expect conditions to worsen, a sharp increase from just 19% a quarter ago.

Reflecting the opinions of 131 Fortune 500 chief executives, those drops suggest some serious doldrums for the broader public. When CEO moods darken, they may pull back on hiring and spending. Thankfully, for now they’re mostly maintaining their spending plans.

Money melancholy

The executive depression matches up with the rest of consumers, whose mood on the economy is grimmer than in pandemic times—and at the lowest level in more than a decade.

Plus, economic readings aren’t giving anyone much reason to perk up. Today’s PPI numbers reveal that US producer prices rose in September at the fastest pace in more than four years, spiking 1.3% from last month and 6.3% from a year ago. That’s mostly thanks to higher energy costs, whose effects have spiraled into the bond and stock markets.

Inflation’s up, prices are pressured, and rate hikes may soon arrive to tame their effects. Ergo, the ultimate class uniter: being bummed out by our bank accounts.—GR

The experience economy

Morning Brew, Inc. Photo: Adobe Stock

For business execs who share Taylor Swift’s aversion to traveling with the general public, Lyft has some good news.

The rideshare company announced today that it’s launching Alcove, a luxury chauffeuring service for executives and VIPs, in early 2027. Building on Lyft’s $110 million acquisition of TBR Global Chauffeuring, Alcove will offer full-day transportation with personalized service and 24/7 support. “Like the bridge instead of the tunnel? Prefer 72 degrees? Want the rear window open just a bit? That’s what Alcove will offer,” CEO David Risher said in a press release.

Lyft isn’t the only one getting into the executive market: Uber is courting the same clientele, having announced its acquisition of luxury chauffeur provider Blacklane earlier this year.

K-shaped strategies for a K-shaped economy

As wealthier Americans keep spending while the rest feel the squeeze, the experience economy is increasingly chasing customers with deeper pockets. In fact, the highest-earning 10% of US households account for more than 40% of spending on vacations and entertainment, according to a new Federal Reserve study.

For comparison, look at the airline industry: Delta’s premium ticket revenue grew 16% through September, more than twice the pace of its main cabin. Air carriers are competing to land luxury clients—even budget-friendly Southwest introduced premium seating this year, where the elite-tier experience comes with five extra inches of legroom.

Over in the credit card industry, companies are similarly expanding their tiers of premium, raising annual fees on ultra-luxe cards and adding semi-premium options that offer a taste of the top without an annual fee of $800 or more.

As more companies turn their attention to wealthy consumers, affordable options and tighter budgets could become an afterthought. Is that worth it for the bottom line?

The road to riches

For Lyft, Risher believes Alcove could eventually become a multibillion-dollar business, giving the company a potentially lucrative revenue stream after falling 11.41% this year. While it’s an attractive proposition on paper, the economics of pampering the wealthy could hit a few bumps down the road.

The upside: Premium customers can generate more revenue per transaction and help companies defend margins when mass-market demand weakens, as Delta’s booming premium business shows.

The catch: Premium service comes with premium costs, and the extra revenue doesn’t always translate into higher margins. And as more companies compete for affluent customers, they risk becoming increasingly dependent on a narrower customer base.

To stand out from the competition, Lyft and others might have to go beyond remembering passengers’ preferred car temperatures. Drivers trained to laugh at a CEO’s jokes, for instance, could be a real selling point.—SY

      

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News

• Anthropic told investors that quarterly revenue jumped nearly 50% to $16.8 billion as it gears up for an IPO.
• Banks like JPMorgan Chase are attempting to sell off some of the AI data center debt they recently underwrote, including a $38 billion Oracle-linked construction loan.
• Tesla will unveil its Roadster tonight with a rumored flying-car demo as the company looks for a lift for its sluggish auto business.
• New York City is investing $29 million into an NYU quantum lab, in exchange for 15% of proceeds from intellectual property developed there.
• Professional golfer Jon Rahm is walking away from more than $100 million by leaving bankrupt LIV Golf.
• Harvard’s endowment returned 27.1% last year, lifting the fund to a record $68 billion with help from investments including SpaceX.

Calendar

We’ll close out a week of bank and insurance earnings with Travelers, M&T Bank, Truist, Citizens, Regions Bank, BancFirst, and Republic Bank all reporting. Plus, we’ll check out fresh federal numbers on import prices and industrial production.

recs

🚀 A Tesla-SpaceX merger may be imminent. Here’s how an autos-focused Barclays analyst says it could unfold for potential investors.

👟 The Big Short’s Michael Burry just dropped his biggest stock holding—and bought this competitor in its place.

📝 Keep the IRS at bay: These two stock picks could pay off for you at tax time.

🏧 Worried how rate hikes might affect your deposits? Here’s how money pros say you can get ahead of banks and credit unions.

🏖️ Hotels are so back. These three getaway stocks in particular just earned a Buy rating from analysts.

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