The return of AI credit risk is crushing data center stocks, tipping over other speculative trades in the process

The upstarts participating in the disruptive industry of today as well as the speculative trades that mark the industries of the future are getting crushed on Friday.

It’s a sign of the creeping investor revolt against the capex binge.

The poster child for the move is CoreWeave, which is sinking after reporting Q4 capex figures that were larger than expected along with a 2026 investment budget that also surprised to the upside.

Neoclouds and data center companies like Nebius, IREN, Applied Digital, and Cipher Digital are also getting whacked. So too are the quantum computing companies: IonQ, D-Wave Quantum, Rigetti Computing, and Infleqtion.

What’s the common link between these two things?

Well, as we’ve discussed, speculative stocks tend to have common owners and trade in a relatively correlated fashion. And once again, this simultaneous swoon is coinciding with a perceived escalation in AI credit risk.

These smaller AI companies that have effectively bet their existence on this boom and the willingness of capital markets to fund their expansion plans would have the most to lose if either demand or access to credit shrinks. And, of course, the latter would impact other companies in nascent industries that need capital to grow.

The private credit industry, which has been broadly overweight software companies in their lending activities, is coming under severe pressure as those firms face competition from AI tools.

Block’s job cuts, regardless of any previous mismanagement CEO Jack Dorsey is willing to cop to, will do little to allay fears that software executives may take dramatic actions to grapple with the impacts of this emergent technology.

Meanwhile, the source of that disruption — AI — is also continuing to suck in a lot of capital without much in the way of returns. It feels like the credit market simultaneously doesn’t want to fund software because of the AI disruption threat and doesn’t want to fund upstart AI firms because of the lack of visibility into free cash flow generation. Not great, Bob!

Oracle, the large-cap stock most used as a barometer for AI credit risk, enjoyed a sharp improvement in its perceived creditworthiness after management said on February 1 that about half their funding needs this year would come from equity, rather than fully from debt. Now, its five-year credit default swap spreads are poised to close at their widest level since 2009.