CoreWeave is facing nearly $7.5 billion in debt service by the end of next year, and is asking investors to make a leap of faith in the ability of cloud computing groups to grow quickly enough to settle looming obligations.
The US company, which leasing computing capabilities to high-tech groups building artificial intelligence models, is preparing for its biggest stock market debut this year. This week, it revealed it was looking to raise up to $2.7 billion in stock sales, valued the business at $32 billion.
As the New Jersey-based group prepares to launch an investor roadshow, it attracts scrutiny of its enormous debt burden, high-interest borrowings and future maturities of billions of dollars.
CoreWeave’s IPO prospectus filed in early March revealed that it has debt and interest payments in 2025 and 2026, far exceeding existing cash flows from operations in 2025 and 2026.
The company also warns that it hopes to borrow more in the future. This year, again, we can borrow again to meet our new contract with Openai worth $12 billion over five years. This requires building a more powerful data center.
Some of the company’s biggest investors have expressed enthusiasm for upcoming IPOs. Speaking at his Chipmaker GTC meeting this week, Nvidia CEO Jensen Huang said he was “very proud” of Coreweave and called it a “great partner.”
Other investors are more wary. “No one knows where he’ll be in three years,” the hedge fund manager said. “Uncertainty is also the demon of all good investments. That may be fine, but it may not be.”
CoreWeave was launched in 2017 to mine cryptocurrency, but two years later it was pivoted by AI, bringing together a large stash of Nvidia’s graphics processing unit. This is the chip that has become the hottest product in the world for building AI systems.
It has grown rapidly in the past two years amid an explosion in AI, with revenues surged from $16 million in 2022 to $19 billion last year. CoreWeave hasn’t made any profit yet. It has recorded a total net loss of $1.5 billion since 2022.
The group also borrows extensively to drive growth, raising $12.9 billion in debt secured over the past two years against contracts with customers such as over 250,000 NVIDIA chips and Microsoft.
At the end of last year, about $8 billion was painted, and another $4.4 billion in loans were cut. Its biggest lenders are private equity group Blackstone and Illinois-based hedge fund Magnetor Capital. These loans require CoreWeave to enter into contracts with large, trustworthy companies that cover future debt repayments.
CoreWeave’s $8 billion debt will have an annual interest expense of approximately $1 billion, according to financial Times calculations. This reduces this nearly $850 million due to planned debt repayments from IPO revenue.
The company operates as a “acquisition or payment” business model, under which it signs an agreement to pre-purchase a certain amount of computing power for a certain number of years.
It then raises the capital (almost entirely through debt) necessary to build a cluster of chips that meet that contract. In addition to its debt, CoreWeave will rent 30 data centers and many of its equipment, operating approximately $2.6 billion in sales rep liabilities in 2024.
CoreWeave leased much of its data center capacity from Core Scientific, another listed company whose shares fell about 40% this year.
One hedge fund manager likened CoreWeave to “AI Data Center Wework” due to the discrepancy between its liabilities and assets.
That revenue is also very concentrated in a small number of customers and suppliers. Nvidia is the largest supplier, one of the largest customers and an investor in the company. In 2024, the contract with Microsoft accounted for 62% of total revenue.
The March FT reported that Microsoft had left some of its commitments at CoreWeave via delays, threatening future sales to high-tech groups. CoreWeave said all of its contractual relationships continued as planned. A few days later, the company announced that it had secured a $12 billion deal with Openai and granted the ChatGpt maker $350 million in shares ahead of the IPO.
Some content could not be loaded. Please check your internet connection or browser settings.
CoreWeave has $5.8 billion in liquidity, consisting of unextracted loans and $1.4 billion in cash. The IPO submission stated that as of December 2024 there is a remaining performance obligation of $15.1 billion in revenue expected to generate from future contract agreements.
The company paid $941 million in 2024, according to its financial report.
The bill will rise to around $3.5 billion this year due to principal payments and interest on $4 billion loans that must begin payments in October and $1 billion loans that will mature in December and must be paid in full. CoreWeave borrowing terms require you to quickly repay your debts to offset the rapidly depreciating value of the chips that are charged as collateral.
Recommended
Nvidia’s Huang joked this week that he was the “Chief Lebanese Destroyer” of his chipmaker.
“(CoreWeave) funds capital-intensive, hard-asset businesses with relatively short-term papers,” said an executive at an investment company with a short position in technology stocks. “Additionally, they are against depreciated assets (Nvidia GPUs), which is not ideal.”
Most of CoreWeave’s borrowings came from two “delayed draws” worth $2.3 billion and $7.6 billion, which were agreed in July 2023 and May 2024, respectively. In December 2024, I secured a $1 billion loan just six months later.
If you implement an IPO, you are obligated to repay the entire $1 billion loan. Last year, I borrowed funds from a consortium of banks led by JPMorgan and MUFG at an effective interest rate of 12%.
Short sellers who have been exposed to many AI companies said, “Given both the substantial risks and inherent capital strength of this business, a third of the cash flow that corresponds to debt is a major issue.”
“If we fail to replace the scope (future) of our Microsoft business, what is it going to do with the margin structure and how much is it possible?”
CoreWeave declined to comment.
