CoreWeave is facing nearly $7.5bn in debt repayments by the end of next year, requiring investors in its blockbuster public listing to take a leap of faith in the cloud computing group’s ability to grow fast enough to settle the looming obligations.
The US company, which leases computing capacity to tech groups building artificial intelligence models, is gearing up for the largest stock market debut of the year. This week it revealed it was seeking to raise as much as $2.7bn in the share sale, valuing the business at $32bn.
As the New Jersey-based group prepares to start an investor roadshow, it is attracting scrutiny for its huge debt burden, borrowing at high interest rates, and forthcoming maturities on billions of dollars of loans.
CoreWeave’s IPO prospectus, filed in early March, revealed it had debt and interest payments due in 2025 and 2026 that far outstripped its existing cash flow from operations.
The company has further warned it expects to borrow more in future. It will borrow again this year to satisfy a new contract with OpenAI worth $12bn over five years, which requires it to build more powerful data centres.
Some of the company’s biggest investors have expressed enthusiasm about its upcoming IPO. Speaking at his chipmaker’s GTC conference this week, Nvidia chief executive Jensen Huang said he was “super proud” of CoreWeave and called it a “great partner”.
Other investors are more wary. “No one knows where it’s going to be in three years’ time,” said one hedge fund manager. “Uncertainty is also the devil of all good investments. It may be fine, but it may not be.”
CoreWeave was launched in 2017 to mine cryptocurrencies, but pivoted to AI two years later having amassed a large stash of Nvidia’s graphics processing units — chips that became the world’s hottest commodity for building AI systems.
It has grown rapidly amid an explosion in AI in the past two years, with revenue soaring from $16mn in 2022 to $1.9bn last year. CoreWeave has yet to turn a profit. Since 2022, it has recorded net losses totalling $1.5bn.
The group has also borrowed extensively to fuel its growth, raising $12.9bn of debt in the past two years secured against its more than 250,000 Nvidia chips and its contracts with customers, such as Microsoft.
It has drawn about $8bn, with another $4.4bn of loans undrawn at the end of last year. Its biggest lenders are private equity group Blackstone and Illinois-based hedge fund Magnetar Capital. These loans require CoreWeave to have contracts with large and creditworthy companies that cover the future debt repayments.
CoreWeave’s $8bn of debt would incur nearly $1bn of annual interest costs, according to Financial Times calculations. This would drop to nearly $850mn with the planned debt repayment from IPO proceeds.
The company operates as a “take or pay” business model, under which its customers sign an agreement to pre-purchase a set amount of computing capacity for a fixed number of years.
It then raises the capital — almost entirely through debt — needed to build the clusters of chips that will satisfy that contract. In addition to its debt, CoreWeave rents its 30 data centres and much of its equipment, resulting in operating lease liabilities of about $2.6bn in 2024.
CoreWeave leases much of its data centre capacity from Core Scientific, a separate listed company whose shares have plunged about 40 per cent this year.
One hedge fund manager likened CoreWeave to the “WeWork of AI data centres” because of the mismatch between its liabilities and assets, with long-term lease commitments but far shorter contracts with customers.
Its revenues are also highly concentrated on a small number of customers and suppliers. Nvidia is its biggest supplier, one of its largest customers and an investor in the company. In 2024, contracts with Microsoft accounted for 62 per cent of total revenue.
The FT in March reported Microsoft had walked away from some of its commitments with CoreWeave over delays, threatening future sales to the tech group. CoreWeave said all of its contractual relationships continued as planned. Days later, the company secured a $12bn deal with OpenAI, while revealing it had granted the ChatGPT maker $350mn of equity in the company ahead of its IPO.
CoreWeave has $5.8bn of liquidity, made up of the loans that it has not drawn and $1.4bn in cash. It said in its IPO filings it had $15.1bn of remaining performance obligations — revenue it expects to generate from contractual agreements in future — as of December 2024.
The company paid $941mn to service its debt in 2024, roughly a third of its $2.9bn net cash from operations that year, according to the company’s financial reports.
That bill will rise this year to about $3.5bn because of principal payments and interest on a $4bn loan that it must start paying in October, and a $1bn loan that matures in December and must be paid in full. The terms of CoreWeave’s borrowing require it to quickly pay down its debt to offset the rapidly depreciating value of the chips it puts up as collateral.
Nvidia’s Huang this week joked that he was the “chief revenue destroyer” of his chipmaker because its newest line of high-performing AI chips, Blackwell, make its previous generations of products seem obsolete.
“[CoreWeave] are financing a capital-intensive, hard-asset business with relatively short-term paper,” said an executive at an investment firm with short positions on tech stocks. “Added to that, they’re borrowing against assets [Nvidia GPUs] that are depreciating. That’s not ideal.”
Most of CoreWeave’s borrowing came from two “delayed draw term loans” worth $2.3bn and $7.6bn that it agreed in July 2023 and May 2024 respectively. It secured the $1bn loan just six months later, in December 2024.
It is obliged to pay off the entire $1bn loan when it carries out its IPO. It borrowed the funds from a consortium of banks led by JPMorgan and MUFG last year at an effective interest rate of 12 per cent.
A short seller with exposure to a number of AI companies said: “A third of cash flow going to servicing debt, given both the substantial risks and the inherent capital intensity of this business, that is a huge issue.”
“If they were unable to replace the extent of its Microsoft business [in the future], what would that do to its margin structure and how likely would they be able to refinance?”
CoreWeave declined to comment.
https://www.ft.com/content/163c6927-2032-4346-857e-8e3787e4babc
