Weekly Investment Update (10/23/2026)

The tone in U.S. equity markets this week reflected a rotation rather than a risk-off environment. AI-related stocks faced continued pressure amid capital expenditure sustainability concerns, though market breadth was positive as the equal-weighted S&P 500 outperformed. Notably, the equal-weighted index recorded its largest single-day outperformance versus the market cap-weighted index since 2024 on Thursday. Bonds also rallied amid pressure in the technology sector, with the 10-year yield falling nearly 17 basis points on Thursday, suggesting that U.S. Treasuries continue to serve as a safe haven.

Economic data this week continued to reflect resilience with initial jobless claims reaching a three-month low, while strong readings in the U.S. services and manufacturing Purchasing Managers’ Index continued to show robust economic growth. Energy prices are still elevated amid concerns over renewed escalation in the Middle East, even as energy flows from the region have recovered significantly since the beginning of the conflict. We believe a geopolitical risk premium is likely contributing to higher oil prices, rather than fundamental shortfalls. For more thoughts, please read our article “Oil Market in Five Pictures: What’s Driving Prices Now?”.

Despite the recent volatility, resilient growth and improving market breadth continue to provide a constructive backdrop for equities. The broadening in market leadership suggests investors continue to find opportunities beyond the largest technology companies, underlining the importance of maintaining diversified portfolios.

CoreWeave Faces Cash Flow Concerns But Overall AI Demand Growth Remains Intact

What is happening: CoreWeave, a major provider of AI computing infrastructure, experienced a sharp decline in stock and bond prices over the past two weeks. CoreWeave is one of the largest “neocloud” companies, which specialize in renting high-performance computing capacity to AI developers, including Microsoft and OpenAI. 

Concerns about the company’s ability to service its debt recently intensified and pushed the company’s bond yields to over 15%. CoreWeave’s stock is also down nearly 30% during October. These concerns reflect the increasingly debt-intensive nature of AI infrastructure development. Unlike technology giants that largely finance their investments through internally generated cash flows, CoreWeave relies heavily on borrowing to purchase Nvidia chips and build data centers. CoreWeave reported approximately $51.6 billion in combined debt and lease liabilities as of June 30, 2026. For the quarter ending June 30, it reported revenue of approximately $2.6 billion and a net loss of $626 million.

CoreWeave reported revenue backlog of approximately $104 billion as of June 30, 2026, supporting our view of strong demand for AI computing. Recognition of this backlog remains subject to delivery and service-availability requirements. However, the company still faces significant cash flow challenges in the near term. During the first half of 2026, the company generated $3.7 billion in operating cash flow but spent $14.1 billion on capital expenditures. On the bright side, the 15% bond yields apply to a relatively small portion of CoreWeave's borrowing. Most of the company’s financing is secured by computing equipment and contracted customer revenues, often at considerably lower interest rates. 

Why it matters: CoreWeave's situation highlights an important distinction between strong demand for AI computing and the ability to earn attractive returns on AI infrastructure investments. CoreWeave’s substantial contracted revenue is not equivalent to profits or cash available for debt repayment. The company must still pay for electricity, maintenance, financing costs, and the eventual replacement of computing equipment to generate those revenues. As a result, its financial difficulties are more reflective of the cash flow challenges associated with the fast pace of AI expansion. CoreWeave’s situation is also not unique, as many neoclouds pursue a strategy that borrows heavily to build infrastructure ahead of revenue. Additionally, CoreWeave has stronger operating cash flows than some smaller neoclouds such as Cipher Digital and TeraWulf.

While higher borrowing costs could make incremental investments less attractive for smaller operators, the largest hyperscalers, including Microsoft, Alphabet, Amazon, and Meta, possess substantial financial resources and are much less dependent on external financing. Our base-case expectation is that demand for AI computing should continue to expand, although investment growth may become more selective as lenders demand stronger contractual protections. Key indicators to monitor include financing costs for new AI infrastructure projects, delays in data center construction, GPU rental prices, and changes in hyperscaler capital spending plans. Ultimately, CoreWeave's debt concerns are not necessarily evidence that the AI investment boom is nearing an end, but rather that sound financial management at the company level is important even during periods of rapid demand expansion. As of this writing, Bessemer’s equity portfolios do not hold any direct positions in CoreWeave and have an overall underweight position in neocloud stocks relative to their applicable benchmarks. 

Housing Market Activity Remains Weak Amid Higher Rates

What is happening: Several housing market indicators released this week show that housing activity remains a weak point in an otherwise resilient U.S. economy. Pending home sales, which track signed contracts, fell 7.3% month over month in September, and the index now sits at its lowest level on record. Similarly, single-family permits fell to their lowest level since 2023 while starts dropped 5.2% month over month to a seasonally adjusted annual rate of 1.221 million units. While multifamily building permits rose 5.9% in September, reaching their highest level since February, actual construction activity remained subdued. The weakness is also reflected in builder sentiment, with the National Association of Home Builders (NAHB) confidence index sliding three points to 29 in October, its weakest level since 2012. 

High home prices and elevated mortgage rates continue to suppress housing activity. The 30-year fixed rate mortgage currently sits at 7.32%, near its highest level since 2023. Elevated borrowing costs continue to weigh on affordability for prospective homebuyers, with mortgage applications falling 5.3% last week, the seventh consecutive week of declines. Higher mortgage rates are also constraining supply, as the average rate on outstanding mortgages sits at just 4.3%, creating a lock-in effect that reduces the incentive for existing homeowners to sell.

Why it matters: While housing is still an important component of the U.S. economy, its direct contribution to economic growth has diminished over time. Residential investment, which includes new home construction and improvements, accounted for roughly 3.6% of GDP in the second quarter, down from more than 6% during the 2000s housing boom. The housing market’s falling share of the overall economy suggests that economic growth can continue to expand at a healthy pace, particularly as consumer spending and nonresidential investment, which account for roughly 70% and 15% of GDP, respectively, continue to hold resilient. 

That said, underlying economic resilience could keep mortgage rates elevated, and therefore could keep housing market activity subdued. Mortgage rates are closely tied to the 10-year Treasury yield, which primarily reflects expectations for economic growth, inflation, and future monetary policy. Strong growth and market expectations for one additional Federal Reserve hike this year will likely limit the scope for a meaningful decline in borrowing costs, prolonging affordability challenges and the mortgage lock-in effect. Looking ahead, we expect housing activity to continue facing headwinds from these issues, but our base case is that housing weakness will not derail overall economic growth, even though it may remain a headwind.