Volatility Drives Down AI Infrastructure Sentiment; CoreWeave, Zenith Arc Take The Pain 

Relevant Items:
Octus AI Infrastructure Deep Dive (May)
Octus AI Infrastructure Update (July)
Octus CoreWeave Deep Dive (March)

Elevated market volatility driven by inflation fears has put a damper on leveraged finance participants’ view of AI infrastructure credit despite the sector seeing an influx of deals hitting the high-yield bond primary market so far this year.

While appetite for AI infrastructure and data center buildout-related deals in the primary market has been in great demand lately, market participants say that recent volatility has driven more dispersion than expected. Credits in the secondary market such as CoreWeave have felt the greatest pain, market sources say.

CoreWeave’s unsecured notes traded into distressed territory on yesterday, Oct. 14, and today, Thursday, Oct. 15, with three of its four dollar-denominated notes trading at a spread above 1,000 and some issues trading at or below 80 cents as of this morning, according to S&P IHS. Among data center bonds, the Jane Street-leased Zenith Arc and CoreWeave-linked Galaxy Helios bonds led the declines.

CoreWeave holds the highest-beta positioning for exposure to AI, noted one high-yield bond investor on the credit, adding that it is quite controversial given that it trades a lot in hedge fund books, both long and short. The exodus from CoreWeave’s debt was likely triggered by a large exit in the debt from a hedge fund, another investor added.

CoreWeave has a cost-of-capital story, not different from a rental company that buys graphic processing units, or GPUs, and rents them out. CoreWeave has to keep spending money, so the cost of capital for them is growing wider, said the high-yield bond investor. Volatility in the market is not helping CoreWeave either, the investor noted, given higher inflation expectations causing a selloff.

Octus has previously analyzed CoreWeave’s business model, concluding that it is highly sensitive to its cost of capital and a number of fundamental assumptions about contract pricing and GPU residuals.

At current trading levels, CoreWeave’s bonds are pricing in roughly even odds of a bankruptcy event, said a third high-yield investor. The notes lost about 4 points on Oct. 14 before some bids filtered in late in the day, he added. The reprieve was short-lived, however, as bids were hit early this morning, pushing bonds down another 3 points.

A sell-off in CoreWeave’s bonds was coupled with weakness in the equity markets. CoreWeave stock was down approximately 15.5% on Oct. 14, as the bond market also sold off debt. Other largely publicly traded neoclouds (such as Nebius and IREN) and data center (such as Core Scientific, TeraWulf, Galaxy and Cipher) stocks were down from 9% to 13%, according to stock exchange data reviewed by Octus.

The concern is that the stress at CoreWeave could spread to the broader AI trade, setting off a domino effect, the third investor noted.

Primary Catches the Secondary Contagion

Overall market sentiment on AI infrastructure-related deals has shifted recently too, other investors noted, on the back of Broadcom CEO Hock Tan’s remarks comparing AI investors to casino gambling. While this is dragging down secondary trading levels, the primary market will feel the pain too, another investor said.

A mix of other factors have been spooking the market when it comes to massive AI financings, as investors are very sensitive to any unforeseen risks popping up, big or small, given that data centers are such a new asset class, according to investors and bankers.

Oracle’s recent force majeure notice at Project Jupiter has forced data center investors to rethink the scope of risks associated with local municipalities pushing back on data centers and how force majeure provisions map across various deal documentations, Octus recently reported. Gartner, a technology intelligence provider, also published a new report on AI infrastructure on Oct. 14, stating, among other things, that 80% of neocloud operators are expected to “cease independent operations.”

Data centers started trading down recently as the market started to price in the worst-case scenario for these assets, a banker said, adding that there are massive sunk costs if they are never able to finish the developments in time. High-yield data center deals in premarketing are likely to be on hold, another source added, while the market finds its footing and awaits investment-grade paper to move. It is a very different credit risk for mature built assets compared with a site that needs to obtain permits and build, the banker continued.

A Growing Distressed Cohort

Affiliated CoreWeave names including Galaxy, Elk Grove Village Property and Digital Drive traded heavily. Meanwhile, other data center associated bond issuers such as Zenith Arc, Meridian Arc HoldCo and Applied Computing also experienced heavy trading volumes.

In Zenith’s case, there were hiccups to obtain a permit from the county in Oklahoma in which it is being built to continue construction, sources said. Jane Street has agreed to lease the site, and it is likely that the permit will eventually be granted. Any small wrinkles, however, can cause delays in the construction timeline, sources said.

Media reports regarding Anthropic’s third-quarter 2026 financials also weighed on sentiment later in the week, with annual recurring revenue figures suggesting a significant deceleration in growth for the frontier lab. Expectations of ARR reaching $100 billion to $120 billion by year’s end also worsened, raising concerns about compute demand and IPO timing. Revenue was $16.8 billion in the quarter, up roughly 45% from $11.6 billion in the second quarter. Quarter-over-quarter growth in the second quarter was 147%.

Two of the largest recent high-yield issues – SoftBank and Skydance – coming to market alongside the interest rate move is making for a perfect storm, the first investor said regarding current market conditions. The pain is coming more from the dynamic issuers, the investor said further, in that if a company misses or posts bad numbers, their debt gets crushed.

The AI exposure has grown quickly, said the third investor, noting that AI data center deals now make up more than a fifth of U.S. high-yield supply this year, compared with a small fraction last year and well ahead of Europe.

CoreWeave and Zenith did not respond to requests for comment.