TOP STORY
😰 Tech Stocks Crash As CoreWeave’s Rising Borrowing Costs Call AI Buildout into Question

☀️ Happy Sunday everyone!

😬 There’s no way to sugarcoat it: it was a rough week in the markets, with AI stocks having their worst week in a year and a half…

Across the indexes:

• The S&P 500 fell -1.95%

• The Nasdaq 100 fell -5.49%

🔻 Chip stocks fell for 9 straight trading days, the sector’s longest losing in roughly 20 years, with the VanEck Semiconductor ETF ($SMH) falling 10% this week.

🤖 The main driver? CoreWeave ($CRWV), a company at the heart of the AI boom, crashed 25% this week after its borrowing costs spiked to record levels, with some seeing it as an early warning sign that the whole AI buildout rests on a shaky foundation of debt (our top story this week).

😰 New inflation reports made matters worse, with September CPI coming in at 3.7% year-over-year (above expectations, with energy costs up 10.8%), leading analysts to price in even more interest rate hikes on the horizon (with the next Fed meeting scheduled for Oct 28th)

🏦 Banks also reported earnings this week with mixed results: Goldman Sachs smashed expectations, but JPMorgan posted its first earnings miss in nearly 3 years… and all four big banks’ stocks fell on the day (our other feature story of the week).

✨ That said, there were a few silver linings in the week of red:

• 📊 The Dow rose +0.7% this week, as money rotated out of AI and into ‘old economy’ stocks

• 🍎 Apple, seen as a hedge against AI debt, rose +2.2%

• 💾 TSMC, the company that makes nearly everyone’s AI chips, posted its 6th straight quarter of record profits (up 69%)… a reminder that AI demand itself is still booming, even as the financing gets questioned

• 💸 The 10-year Treasury yield eased to ~5.1% (down 14 basis points this week) as money moved into bonds

• 🍁 The Canadian TSX index rose +1.4% as gold stocks tracked by the resource-heavy index rode record gold prices to a three-week high

  🚗 And last but not least, Tesla unveiled a FLYING Roadster, launching it into the air and spinning it mid-flight using SpaceX thrusters (see the video here)… production isn’t planned until 2028, but it was easily the coolest thing markets saw all week.

🤔 So, why did one company’s borrowing costs sink the entire market? Let’s get into it…

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TOP STORY
👻 Why CoreWeave’s Rising Debt Costs Spooked the Market

📉 This week, CoreWeave ($CRWV) crashed more than 25%, falling 12% on Friday alone to around $61 per share. But the scary part wasn't the stock… it was what happened to the company's debt.

👀 Wait, What’s CoreWeave?

💡 In case this is your first time hearing about CoreWeave, let me quickly explain what the company does and why it’s so important this week.

☁️ CoreWeave is what Wall Street calls a "neocloud", a new type of cloud company that borrows billions to buy Nvidia chips, land, and power to build giant AI data centers, and rent the computing power out to companies like OpenAI, Meta, and Microsoft.

🆚 You can think of it as a cousin to Amazon’s AWS or Microsoft Azure, but built from scratch entirely for AI. Similar to Nebius ($NBIS) (which we covered in detail here).

🚀 CoreWeave IPO’d in March of last year and quickly became a top AI stock, reaching a market value of about $40 billion in no time, while drawing a lot of attention because Nvidia ($NVDA) owns roughly 10% of the company.

😬 But CoreWeave has never turned a profit and lost $1.2 billion on $5.1 billion in revenue last year. This year it's expected to double its revenue, but its spending (CapEx) is set to quadruple to $35-39 billion, funded almost entirely by debt.

⚠️ And that debt is the driver of this week’s crash…

💣 An Impending Debt Bomb?

🏦 With CoreWeave still unprofitable, it needs debt to run its business. And after months of intense AI CapEx in 2026 so far, the company’s debt rose to about $52 billion as of June, more than triple the ~$15 billion it owed a year earlier (and continues to climb).

📉 To make matters worse, S&P reaffirmed CoreWeave’s credit rating of B+ last month, which is below investment grade (aka “junk”) and means the cost for that debt will only rise since lenders require higher yields for the higher risk.

🩸 Those debt costs spiked this week, with the company’s secondary market bond yields hitting a massive 15-16%.

👀 But that’s not all…

😱 The cost of insuring CoreWeave’s debt against default also spiked to an all-time high of 10% this week, i.e. $1 million a year to protect $10 million of debt. Markets now imply a roughly 64% chance the company defaults sometime in the next 5 years (up from ~30% a year ago).

💸 For now, the company’s current debt is mostly at a lower rate (around ~9%), but future borrowing will reflect the new rates. And because CoreWeave’s whole business model depends on borrowing and it’s already raised CapEx projections, new borrowing at these higher rates is essentially guaranteed.

🤨 But if this is a CoreWeave problem, why did other AI stocks crash?

😬 The Canary in the AI Coal Mine

⚠️ The reason CoreWeave-driven debt fears spread across the market is that many investors see it as a warning for how the entire AI buildout is being financed. As Max Frumes, head of distressed debt research at 9fin, put it:

💰 And this is much bigger than one company: nearly every major cloud giant, including Alphabet, Amazon, Meta, and Oracle, has leaned on the bond market this year, issuing more than $228 billion of bonds… more than double their total for all of last year.

💸 As we’ve covered extensively over the past year, the AI boom used to be funded by Big Tech's enormous cash profits, but it's increasingly funded by debt… and according to Deutsche Bank's Jim Reid:

🔥 And with inflation hot, the Fed hiking interest rates, and yields near 20-year highs, the era of cheap borrowing that made "spend now, profit later" possible may be ending.

🤔 So that's the pessimistic case… but is the panic overblown? Many other experts think so. But before we dive into the case for calm, a quick word from our other sponsor this week: Nasdaq!

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TOP STORY CONT.
🧘 The Case for Calm: Why This Week’s Fears May be Overblown

⭐️ Not everyone is pessimistic this week. Nvidia CEO Jensen Huang came to CoreWeave’s defense on Thursday, sparking a 6% rebound:

🎯 Cantor Fitzgerald analyst Brett Knoblauch went further, calling it a buy-the-dip moment with a $176 price target (nearly triple the current price).

🚀 Knoblauch argues that the debt panic reflects financing costs, not weakening demand, and that the company’s ~$104 billion contract backlog is bigger than its entire debt pile.

⏰ He also points out that CoreWeave’s payback period, a measure of how fast its investments pay themselves back, has shortened to ~2 years.

📊 Knoblauch isn’t alone, analysts overall still rate CoreWeave a "Moderate Buy," with an average price target of $143.59… roughly 134% above where the stock trades today.

🤑 Across the broader market, the crash this week has made stocks cheaper relative to their earnings, with the S&P 500 now trading under 19 times next year's expected profits… the ‘cheapest’ it’s been in 3 years.

😱 Analysts also point out that these ‘AI doom’ predictions have become a staple of the market over the past 3 years, and have been wrong time and time again, with one strategist saying:

🤷‍♂️ The honest answer is that nobody really knows whether this was the start of the AI credit crunch or just another scare the market shrugs off.

💡 And as always, I think crashes like this are an important check on whether your portfolio matches your risk tolerance.

📊 If you are investing for the long term, you will experience a crash (likely much worse than this) at some point, so use this dip as a chance to re-evaluate whether you can stomach the amount of risk you’ve taken on with your portfolio!

🤖 And if you want to check how exposed you are to the AI trade, check out Beevis (Blossom’s AI Portfolio Assistant)!

📖 Lucky for us, we won’t have to wait long for the next chapter of the AI story… big tech earnings kick off this coming week starting with Tesla and Meta, the Fed decides on rates October 28th, and CoreWeave’s own earnings in November…

🏦 And speaking of earnings, I also promised to unpack the US banks, a story we’ve been covering for the past few weeks now… but before we switch gears, a quick word about a new ETF that hit the markets this week!

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EARNINGS RECAP
🏦 U.S. Banks All Report Rising Profits, But Shares Fall Anyway

💸 On Tuesday, four of America’s largest banks released their Q3 2026 earnings, and every single one grew its profit… yet all four stocks fell anyway.

🐝 If you've been reading the Buzz over the past few weeks, this was the moment we've been building to: first financial stocks had their worst month against the market since 1990 (covered here), and I mentioned this week’s earnings will be the test of whether that selloff was "just rotation"… or a warning that something was actually breaking.

📊 Well, looking at the numbers

• ✅ Goldman Sachs smashed expectations, with EPS of $17.01 vs. $13.09 expected, powered by a 72% surge in stock-trading revenue to $6.44 billion

• ❌ JPMorgan posted its first earnings miss in nearly 3 years as bond-trading slowed, though profits still came in at $15.3 billion… and its CFO stressed that dealmaking is "delayed rather than canceled"

• ✅ Citigroup grew profits 40% from a year ago, beat expectations, and posted its best Q3 bond-trading revenue in more than a decade

• 😬 Wells Fargo's profits rose too, but its net interest income missed estimates

🧐 As a refresher, these reports mattered because when interest rates rise fast, the first cracks historically show up at the banks… with consumers falling behind on credit cards and mortgages, businesses defaulting on loans, and banks scrambling to set aside money to cover the losses.

⭐️ And this quarter's health report came back clean: JPMorgan set aside 19% less for bad loans than a year ago, and charge-offs (loans actually going bad) fell by more than $300 million… meaning consumers are handling high rates far better than feared.

🫣 But despite the strong reports, every stock ended Tuesday lower, with Citi falling 5%, and Wells Fargo falling 3%.

🤷 So Why Didn’t the Stocks Rally?

🔮 The main reason is the market isn't trading on this quarter… It's trading on next year. As Truist's Brian Foran put it:

😰 With Treasury yields near 24-year highs, that nervousness comes down to two uncomfortable questions for the banks:

• 1️⃣ How much will they have to pay to keep depositors from leaving for higher yields elsewhere?

• 2️⃣ How much will their existing bond holdings lose as rates rise? (JPMorgan already took a $658 million loss on its bonds this quarter)

⚠️ Even JPMorgan CEO Jamie Dimon sounded cautious, warning that deficits, sticky inflation, rising rates, and geopolitics continue to "shift under the surface"… and with most Fed officials expecting at least one more hike this year, that pressure isn't going away.

✨ Ironically, by Friday, with the AI selloff in full swing, suddenly the boring banks with real profits looked attractive again, with financials ending the week in the green… a reversal from the past two months, when money couldn’t leave the banks fast enough to chase AI.

🧑‍⚖️ So the verdict on our two-week question: the banks seem to be healthy, consumers are holding up, and nothing is breaking… the stocks are just stuck waiting to find out whether the interest rate hikes will continue… and we won’t have to wait long, with the next Fed announcement on Oct 28th!

FROM THE BLOSSOM COMMUNITY
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