Is it becoming more difficult to "leverage up" AI? CoreWeave-related data center bond issuance meets a cold reception from the market.

The financing boom for artificial intelligence infrastructure construction is now facing a test. A large data center bond issuance related to AI rising star CoreWeave has failed to gain enthusiastic support from the market due to its relatively high risk exposure.

According to Bloomberg, citing sources familiar with the matter, as of Wednesday afternoon, Applied Digital had received only about $2 billion in orders for its $2.35 billion junk bond issuance. The subscription status of this deal, expected to be completed on Thursday, stands in sharp contrast to the recent frenzy seen in similar transactions.

The main reason for the tepid market response is that the primary tenant of this data center is speculative-grade CoreWeave, lacking the "credit endorsement" previously provided by Alphabet, the parent company of Google, in the TeraWulf and Cipher Mining deals. This directly causes Applied Digital to face higher financing costs, with bond yields expected to be around 8.5%.

Investors' cautious attitude is directly reflected in the pricing. According to people familiar with the matter, the yield on Applied Digital's bonds in this issuance is around 8.5%, much higher than the two recently sought-after similar deals.

By comparison, the coupon rates for TeraWulf and Cipher Mining's bonds are 7.75% and 7.125%, respectively, and their post-listing prices have been above par, with actual yields already below 7%. Although these three bonds have similar ratings, the market pricing differs significantly.

Lack of Major "Endorsement" Is Key

Previously, TeraWulf's $3.2 billion bond received more than $10 billion in orders, and Cipher Mining's $1.4 billion bond also attracted over $7 billion in subscriptions.

Reports indicate the success of these two transactions was largely due to the implicit support provided by Alphabet, the parent company of Google, which gave investors tremendous confidence.

In contrast, Applied Digital's deal lacks such strong counterparty credit guarantees, and its primary tenant CoreWeave itself carries a speculative-grade credit rating, which has become a core concern for investors.

In a report, S&P Global Ratings pointed out that Applied Digital “relies heavily on CoreWeave,” which is expected to contribute about two-thirds of its contract revenue.

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