Key Highlights

● Jensen Huang said CoreWeave's financial strength is improving and its cost of capital is decreasing.

● Shares plunged Friday anyway, with a debt load above $50 billion in market focus.

● Co-founders have sold $3.3 billion of stock since the IPO, a news report said.

● All 30 PHLX Semiconductor Index members fell while AI infrastructure names came under pressure.

A high-profile vote of confidence

On Thursday, Nvidia (NASDAQ:NVDA) Chief Executive Jensen Huang offered a strong defense of CoreWeave (NASDAQ:CRWV) while speaking to reporters in Stockholm. "CoreWeave's financial strength is improving every day," he said, per a published report. "I'm optimistic. Their cost of capital is actually decreasing." Another report said Huang also stated that CoreWeave does not need a backstop.

Huang's words carry weight. Nvidia supplies the graphics processors that CoreWeave rents to AI developers, and Nvidia holds a stake in the company. Yet on Friday, CoreWeave plunged anyway, closing at $61.39, according to market data, and finishing among the biggest decliners on the Nasdaq Composite. Reports differed slightly on the size of the drop.

Why the defense fell short

The market's focus was on CoreWeave's debt, which totals more than $50 billion according to market reports, or above $51 billion according to one data source. Credit markets were flashing caution: a published headline reported that the cost to insure CoreWeave's debt hit a record, and a wire report said its 9.625 notes due 2032 have traded below 80 cents on the dollar since their June issue.

Those signals suggested investors wanted more than reassurance. According to market commentary, the market had shifted from asking what AI can do to asking how it will be financed, with debt-funded infrastructure names hit hardest. Goldman Sachs described hedge funds' selling of AI names as a "tactical rotation," per market commentary.

Nvidia's own shares wobbled. Reports were mixed on its direction, with one saying it rose while others showed it slipping.

Analysts take sides

A BofA Securities analyst kept a Buy rating and a $140 price target. "First of all, this is more sentiment driven. This is not about fundamentals," the analyst said. Deutsche Bank kept a Buy rating, and Cantor Fitzgerald called the drop a buying opportunity. A research firm, however, cut its target to $108 from $115.

Separately, a news report said CoreWeave's co-founders have sold $3.3 billion of stock since the company's initial public offering. Those reported sales took place over the period since the listing, and no source cited them as a cause of Friday's move.

AI infrastructure under pressure

CoreWeave had company. Nebius Group (NASDAQ:NBIS) plunged, per market data, and steep losses were reported in Applied Digital (NASDAQ:APLD), IREN (NASDAQ:IREN), Cipher Digital (NASDAQ:CIFR) and DigitalOcean (NYSE:DOCN). Semiconductor stocks extended a losing streak, with all 30 members of the PHLX Semiconductor Index falling.

The Nasdaq Composite fell 572.99 points to 26,140.03, its worst week since the week ended June 26. The S&P 500 lost 84.62 points to 7,659.44, and the Dow Jones Industrial Average slipped 175.28 points to 52,002.41. Market reports said the rotation erased more than $1 trillion from semiconductor and AI-related stocks during the week.

One market commentator summed up the divide: "The AI group is now splitting between companies that can fund the buildout themselves and those that have to borrow."

Huang's Cost-of-Capital Claim Faces Test

Next week's Big Tech earnings, including Meta (NASDAQ:META) on Wednesday, October 21, will test AI spending sentiment, per market data. The Federal Reserve's next decision is due October 28. Fed Chair Kevin Warsh declined to preview it, saying, "I don't prejudge meetings."

Investors will be watching whether evidence emerges to support Huang's view that CoreWeave's cost of capital is decreasing, particularly in the pricing of its bonds and credit insurance. Any financing announcements from the company could be pivotal.