CoreWeave turns to chip-backed loans as AI debt mounts

CoreWeave is angling for a massive loan using its chips as collateral. The up-and-coming AI cloud group is leaning heavily on this new funding stream as some of its existing corporate debt is still trading in distressed territory.

CEO Michael Intrator asserted, “Looking ahead, we will not use the unsecured debt market to fund our business at current yields. Nor do we need to.” He insisted that, under current conditions, the chip-backed loan was an effective way to raise money.

Investors have been keeping a very close eye on the company’s strategy for funding its infrastructure buildup. In the past few months, the firm’s stock and bonds have been hit hard by growing fears about the massive borrowing used to build its data centers. The firm’s shares have lost roughly 40% of their value over the past month.

Nevertheless, analysts at Wolfe Research have argued that neocloud companies need to be fully transparent about how much cash they require to clear their order backlogs and meet their targets. Giving investors a clear roadmap of which funding channels they’ll use and when would go a long way toward calming the market, they said.

CoreWeave says chip-backed loans will cover nearly all the equipment cost

CoreWeave intends to purchase Nvidia chips and infrastructure equipment with the new loan. It expects a 7% to 7.5% interest rate—slashing its unsecured debt borrowing costs by more than half. Depending on the customer, the chip-backed loans would also cover anywhere from the full equipment cost to 70% of it, Intrator said.

Additionally, over the next three months, the company expects an influx of about $9 billion in client deposits and advance payments, and it plans to keep pressing for more. According to Intrator, advance funding is simply a more attractive path in the current market. He added that the firm would not seek any additional unsecured financing at the moment, given the prevailing high interest rates.

The company’s financing strategy highlights the difficult balance AI infrastructure providers face. Building data centers requires substantial upfront capital, while the revenue generated from those facilities may take time to cover construction, equipment, electricity, and financing costs.

CoreWeave must therefore continue to secure funding while ensuring that its expanding customer contracts generate sufficient cash to meet its obligations. The shift toward asset-backed loans and customer advances suggests that the company is becoming more selective about how it finances its expansion.

The firm’s financing strategy shows that data centers require significant upfront capital to build, but revenue from those facilities may take time to cover construction, equipment, electricity, and financing costs.

CoreWeave therefore has to continue raising funding while also ensuring that its expanding customer contracts generate enough cash to pay for them — asset-backed loans and customer advances point in that direction. The company is getting more selective about how it finances expansion.

“Their interest expense is far higher than adjusted operating income — that tells you that the business they generate from these data centers is not enough to pay down the debt that they’re accruing.”

CoreWeave CEO, Michael Intrator. 

CoreWeave projects its revenues will exceed $13 billion

Meanwhile, CoreWeave has increased its revenue forecast for the year to $13 billion to $13.3 billion, higher than its earlier upper forecast of $13.2 billion and the $12.9 billion estimated by Wall Street analysts. This new forecast provided some relief to parts of the investor community, which is still worried about the company’s enormous debt burden and aggressive expenditure plan.

“If CoreWeave can string together several quarters in a row of this type of execution, that fear would subside,” Brian Mulberry, chief market strategist at Zacks Investment Management.

For its third quarter, CoreWeave made $3.66 billion in revenue, which surpassed Wall Street’s expectations of $3.56 billion. The cloud services provider also reported a smaller-than-anticipated loss of $1.27 per share, compared to the estimated $1.46 per share.

According to the Chief Executive Officer, these earnings results show that the company is doing well, scaling quickly, and attracting loyal customers. The executive reiterated that their operating profits are well above their interest costs and that by 2028 the company will generate net profits.

A downturn could still be brewing for CoreWeave, though. Microsoft, which historically accounted for the lion’s share of CoreWeave’s sales, noted it was scaling back capital expenditures because some of its neocloud partners are running behind schedule, though it did not specify which ones.