19/10/26: CoreWeave, US inflation & earnings season
Monday Espresso Podcast - 19th October 2026
[00:00:00] Rory Dowie: Good morning. Today is Monday the 19th of October. I'm Rory Dowie, portfolio manager here at Marlborough. Joining me again today is Andrew Shaw, one of our senior investment analysts, as I'm sure many of you will know. So Andrew, good morning.
[00:00:13] Andrew Shaw: Good morning, Rory.
[00:00:14] Rory Dowie: A choppy week last week. So lots to cover this morning.
[00:00:17] Rory Dowie: We had many, many moving parts. Firstly, the credit market, which was sending a warning signal on the AI trade with CoreWeaves credit default swaps, hitting distress levels.
[00:00:28] Rory Dowie: Secondly, we had a hot US inflation print on Wednesday. And thirdly, earnings season kicked off with the big US banks reporting.
[00:00:37] Rory Dowie: First things first though, Andrew, how did markets get on?
[00:00:40] Andrew Shaw: Yet again, Rory, it was a tale of two halves last week and, really a tale of rotation. The S&P500 snapped a three day losing streak on Thursday, but was still down under 1% for the week. While the tech heavy NASDAQ was down more than 2%.
[00:00:55] Andrew Shaw: The Dow Jones, which in index tracking more economically sensitive parts of the US market, actually had a good week, it was up over 1% on Thursday alone. As investors moved money away from AI names in into areas like financials, healthcare, and materials.
[00:01:11] Andrew Shaw: Closer to home, the UK was a standout. The FTSE100 was on track for a gain of around 2.5% for the week. The UK is a more defensive market, so it performed well amidst the US concerns.
[00:01:23] Andrew Shaw: Europe was a little bit more mixed with chip names like ASML and Infineon hit hard on Thursday.
[00:01:30] Andrew Shaw: Japan was also volatile, but recouped some of its losses into the end of the week.
[00:01:34] Rory Dowie: So very much a rotation week rather than a wholesale sell off then. I guess one positive worth flagging, and again, building on what we spoke about last week, we did see breadth in the market improve more than half of the S&P500 stocks, are now above their 200 day moving averages up from around 40% at the end of September.
[00:01:54] Rory Dowie: So the market isn't just being carried by a handful of tech names. We're seeing slightly better participation across other stocks as well. But clearly the AI
names had a rough week, which brings us nicely to CoreWeave. For our listeners who haven't come across them, who are they and what happened last week specifically?
[00:02:11] Andrew Shaw: Yeah, CoreWeave is what's called a neo cloud, Rory. In simple terms, they buy huge numbers of Nvidia's chips. They put them in data centres and rent that computing power out to the big AI players and hyperscalers. Demand definitely isn't the issue. They have contracts with all the major hyperscalers. The issue is how they've paid for it really.
[00:02:32] Andrew Shaw: CoreWeave has taken on more than $51 billion of debt and lease obligations to fund the build out, and it's still burning cash. On Wednesday the shares full around 15%, down to $66.
[00:02:46] Andrew Shaw: There are a few things that came together for that. It was a report that the company was looking to the insurance industry for more funding, and that was in the FT.
[00:02:55] Andrew Shaw: Then there was a Gartner report warning that most neo cloud providers could lose their independence by the end of the decade. And the hot inflation print pushing up borrowing costs also didn't help.
[00:03:06] Rory Dowie: Yeah, as you say their stock price suffered, but stock price actually isn't really the story here. It's actually the credit market.
[00:03:13] Rory Dowie: Can you explain what a CDS is for our listeners and why that's important in the context of CoreWeave?
[00:03:19] Andrew Shaw: Yeah. A credit default swap is essential insurance against the company not paying back its debt. The buyer pays an annual premium and if the company defaults, they get paid out. The higher the premium, the riskier the market thinks the debt is.
[00:03:33] Andrew Shaw: CoreWeaves five year CDS spread went above 1,140 basis points on Thursday before settling around 1,088. That was up about a third in a week, and to put that in point in terms ensuring $10 million of core weave debt now costs over $1 million a year. Anything above 1000 basis points is generally viewed as distressed territory.
[00:03:58] Rory Dowie: So what does that mean for the wider AI trade and markets then?
[00:04:02] Andrew Shaw: Three things for us. First, it spread, Oracle fell around 7% on Wednesday, and fellow neo clouds like Nebius fell close to 10%. CDS on Oracle and SoftBank also widened. And even the CDS for Amazon, Alphabet and Meta hit record highs, albeit from very low levels and at a much slower pace.
[00:04:24] Andrew Shaw: Second, it's a funding question rather than a demand question. TSMC's numbers last week showed demand for AI chips is still extremely strong. What the credit market is asking for is who can afford to keep spending? The hyperscalers from their CapEx from enormous cash flows, the neo clouds from theirs with debt, and that becomes much harder with rising rates.
[00:04:46] Andrew Shaw: And thirdly, it's a reminder of how intertwined this ecosystem is. The neo clouds are big customers of Nvidia, and Nvidia is also an investor in some of them. If one part of the chain struggles to raise money, it can feed back into orders further up.
[00:05:02] Rory Dowie: I think the key takeaway for listeners is this. The credit market is often the early warning signal, and it's telling us that the debt funded part of the AI build out is under some real strain given the high yields we now have.
[00:05:14] Rory Dowie: That doesn't necessarily mean the AI story is over, and we saw that from some of the earnings TSMC, ASML last week, but it does mean people need to keep a close eye on the balance sheets and cash flows.
[00:05:27] Rory Dowie: Clearly we have the hyperscaler earnings at the end of the month, and that's gonna be a big test to see if this CapEx holds up.
[00:05:34] Rory Dowie: Changing tact somewhat, Andrew, moving to inflation. That was the big driver on sentiment last week alongside CoreWeave. What did the September numbers show on Wednesday?
[00:05:44] Andrew Shaw: Yeah, it came in hot Rory. Headline CPI rose 0.6% in the month and 3.7% year on year, and that's up from 3.4% in August and above the 3.6% that was expected.
[00:05:59] Andrew Shaw: Energy was the main culprit again. Gasoline prices rose 9.1% in September alone and accounted for more than half of the monthly increase. That's the Iran conflict, still feeding through with Brent crude up around 42% over the third quarter of 2026.
[00:06:16] Andrew Shaw: The more worrying part was core inflation, which strips out food and energy that rose 0.3% in the month and 2.6% year on year against expectations of 0.2% and 2.5% so it isn't just fuel.
[00:06:32] Andrew Shaw: And on Thursday, producer prices essentially inflation at the wholesale level came in even hotter at 6.3% year on year, which was versus an expected 5.3%.
[00:06:45] Rory Dowie: So inflation proving stickier than hoped and that kind of reaffirms we were likely to get more rate hikes in the US down the line.
[00:06:52] Rory Dowie: And that matters for markets in a couple of ways. Higher rates for longer puts pressure on stock valuations, particularly those growth stocks. And as we just discussed earlier, they raise the borrowing costs for more of the indebted parts of the markets. The CoreWeaves of this world if you like. So we'll be keeping a very close eye on that inflation picture.
[00:07:12] Rory Dowie: We've gone through a lot there. Andrew Earning season did kick off last week, but we'll cover that in more detail next week when we've had a few more companies reporting. But what have our listeners got to look out for this week?
[00:07:22] Andrew Shaw: Yeah, earnings season really ramps up and as you mentioned with more companies reporting, we'll get a much better read on how broad the growth is.
[00:07:30] Andrew Shaw: The Fed is in it's blackout period ahead of the 28th of October meeting. So the focus will be on any economic data that could tip the balance on a hike. And of course we'll be keeping a close eye on CoreWeaves credit in the wider AI funding picture.
[00:07:44] Rory Dowie: Brilliant, very clear. Thanks for joining me, Andrew. To our listeners, I hope you found that useful.
[00:07:49] Rory Dowie: It is actually my mom's birthday today, so happy birthday mum. As always, do reach out with any questions. Wishing you a great week ahead.
