CoreWeave, a U.S. artificial intelligence (AI) cloud company, reported third-quarter revenue that exceeded market expectations, yet its debt ratio surpassed 2000%, with debts due within a year amounting to 2.6 times its cash reserves.
The financial struggles of the so-called 'neocloud' sector, which rents out NVIDIA graphics processing units (GPUs), are becoming evident, impacting the semiconductor supply chain involving NVIDIA, Samsung Electronics, and SK Hynix.
As of the end of the third quarter, CoreWeave disclosed total liabilities of $87.456 billion and equity of $4.025 billion.
The debt-to-equity ratio stands at 2173%. The company has $46.873 billion in interest-bearing debt, which is more than 11 times its cash and cash equivalents of $4.122 billion. Of this, $10.572 billion (approximately 14 trillion won) is due within the next year.
Revenue increased by 168% year-over-year to $3.661 billion, surpassing market expectations of $3.555 billion. However, net interest expenses reached $846 million, four times the operating profit of $207 million. Consequently, the net loss ballooned to $709 million, more than six times the $110 million loss reported in the same period last year. The company has warned that interest expenses could rise to between $1.05 billion and $1.15 billion in the fourth quarter.
CoreWeave is unable to cover its investments with its earnings. Cash generated from operations in the third quarter was $1.975 billion, while capital expenditures amounted to $9.441 billion, resulting in a shortfall of $7.466 billion in just one quarter. The company anticipates capital expenditures for the year to be between $37 billion and $39 billion.
To address the funding gap, CoreWeave is relying on debt and equity. In the third quarter, it raised approximately $4.2 billion through convertible bonds and established a program to sell up to 35 million shares of Class A stock. The company explained that it expects to receive about $9 billion in customer deposits and advance payments over the next three months. This structure relies on borrowing, equity issuance, and customer prepayments to continue its investments.
The credit market is already reflecting default risks. According to Reuters, the yield on CoreWeave's bonds maturing in 2031 exceeded 16%, a threshold indicating distressed debt. The estimated probability of default within five years, based on credit default swap (CDS) prices, is approximately 63%. Standard & Poor's has assigned a junk rating of B+ to the company, and its stock price has dropped about 40% in the past month.
CoreWeave's financial difficulties are directly linked to the AI operations of major tech companies. Approximately 72% of its revenue in the second quarter came from Microsoft, OpenAI, and Meta, which rely heavily on CoreWeave for AI computing resources. NVIDIA holds about a 10% stake in CoreWeave and has agreed to purchase computing capacity that CoreWeave cannot sell until April 2032. If CoreWeave falters, the burden will shift to NVIDIA.
The entire neocloud sector is facing similar challenges. UK-based Nexscale is considering postponing its $35 billion IPO plan following a sharp decline in AI-related stocks. Market research firm Gartner projected last month that more than 80% of neocloud companies will cease independent operations by 2030. Data center operators are expected to incur costs of $8.5 trillion by 2030, while AI revenues are projected to reach only $3.6 trillion during the same period.
Samsung Electronics and SK Hynix are also affected by the neocloud crisis. Both companies supply high-bandwidth memory (HBM) used in NVIDIA GPUs. If neocloud companies reduce GPU purchases due to financial difficulties, it will also lead to a decrease in HBM orders from NVIDIA.
* This article has been translated by AI.
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