Something ominous — a reminder of the 2008 financial crisis — is happening in the AI economy
A company that most people have never heard of is among the year’s best-performing technology firms—and a symbol of the complex, interconnected, and potentially catastrophic ways in which AI companies do business these days.
CoreWeave’s IPO in March was the largest of any tech start-up since 2021, and the company’s share price has subsequently more than doubled, outperforming even the “Magnificent Seven” tech stocks. On Wall Street, CoreWeave is regularly referred to as one of the most important companies powering the AI revolution. In the past few months, it has announced a $22 billion partnership with OpenAI, a $14 billion deal with Meta, and a $6 billion arrangement with Nvidia.
Not bad for a former crypto-mining firm turned data-center operator with zero profits and billions of dollars in debt on its books.
CoreWeave’s business model consists of buying up lots of high-end computer chips, and building or leasing data centers to house those chips. It then rents out those assets to AI companies that need computing power but prefer not to take on the huge up-front costs themselves. If this is straightforward enough, CoreWeave’s financial situation is anything but. The company expects to bring in $5 billion in revenue this year while spending roughly $20 billion. To cover that gap, the company has taken on $14 billion in debt, more than half of which comes due in the next year. Many of these loans were issued by private-equity firms at high interest rates, and several use complex forms of financial engineering, such as giving the money to newly formed legal entities created for the explicit purpose of borrowing on CoreWeave’s behalf (more on that later). CoreWeave also faces $34 billion in scheduled lease payments that will start kicking in between now and 2028.
The money that CoreWeave is making, meanwhile, comes from just a few intimately connected sources. A single customer, Microsoft, is responsible for as much as 70 percent of its revenue; its next biggest customers, Nvidia and OpenAI, might make up another 20 percent, though exact numbers are hard to find. Nvidia is also CoreWeave’s exclusive supplier of chips and one of its major investors, meaning CoreWeave is using Nvidia’s money to buy Nvidia’s chips and then renting them right back to Nvidia. [Continue reading…]