Investor concerns are starting to weigh on some artificial intelligence stocks, particularly those trading at high valuations and lacking fortress balance sheets to navigate what could become a very difficult environment if funding dries up and the AI trade hits a snag.

CoreWeave's (NASDAQ: CRWV) stock nose-dived nearly 15.5% on Oct. 14 on account of these concerns. The neocloud player has piled on debt to build out data centers to power the AI revolution. However, soaring bond yields have raised the cost of capital, leading investors to increasingly believe that capital markets for these AI stories could potentially freeze up, or at least make it more difficult to raise funding.

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CoreWeave is projected to have a 6.3x gross leverage ratio by year-end, prompting market questions about the company's balance sheet.

Image source: The Motley Fool.

The "era of easy money" may be coming to an end

CoreWeave was one of the earlier, more notable neoclouds, which began building data centers specifically for the hyperscalers driving the AI revolution. Key customers include Microsoft, OpenAI, Meta Platforms, Nvidia, and Anthropic.

In just a few years, the company has brought 51 active data centers online that collectively can provide 1.5 gigawatts (GW) of compute. The company added eight data centers this year and has contracted roughly 4.2 GW of total power as of Aug. 11.

The problem is that building these data centers is extremely capital-intensive, forcing the company to raise significant debt to fund the build-out. At the end of the second quarter, the company had generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of nearly $2.7 billion.Meanwhile, total debt was $27.6 billion, compared with roughly $5 billion in total shareholder equity.

Looking ahead, Wall Street analysts project that CoreWeave will significantly grow its debt pile to $47.6 billion by the end of 2026, according to Visible Alpha. Projected adjusted EBITDA is expected to hit about $7.6 billion by year-end, giving the company a gross leverage ratio of nearly 6.3x.

The situation, coupled with a higher-rate environment, has led investors to sell CoreWeave bonds. For instance, according to Barron's, CoreWeave's 9.625% senior unsecured notes due in 2032 fell below $80, as of Oct. 14. Bonds are typically priced at par ($100) and have an inverse relationship with bond yields.