CoreWeave Is A Time Bomb

Read the full article here. Highlights below:

OpenAI announced the completion of a deal with Coreweave valued at $11.9bn that would see it procure AI compute from the company, while also taking a $350m stake in the business. 
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CoreWeave is, on many levels, indicative of the larger success (or failure) of the so-called AI revolution. The company's core business involves selling the unavoidable fuel for generative AI — access to the latest (and most powerful) GPUs and the infrastructure to run them, a result of its cozy relationship with (and investment from) NVIDIA, which has given CoreWeave priority access to its chips. As CoreWeave’s own S-1 notes, it was “the first cloud provider to make NVIDIA GB200 NVL72-based instances generally available,” and “among the first cloud providers to deploy high-performance infrastructure with NVIDIA H100, H200, and GH200.”
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CoreWeave’s S-1 tells the tale of a company that appears to be built for collapse, with over 60% of its revenue dependent on one customer, Microsoft. In early March, the Financial Times reported that Microsoft has dropped "some services" with CoreWeave, citing delivery issues and delays, although Coreweave would later deny this. 

The timing, however, is suspicious. It came a mere week after TD Cowen's explosive report that claimed Microsoft had walked away from over a gigawatt of data center operations, and likely much, much more^[1]. For context, a gigawatt is about the same as the cumulative data center capacity in London or Tokyo — each city being the largest data center market in their respective regions. 

CoreWeave is burdened by $8 billion of debt (with its most recent debt raise bringing in $7.6bn, although that line of credit has not been fully tapped) that it may not be able to service. This figure does not include other commitments which are listed on the balance sheet as liabilities, like its various lease agreements for hardware and data center facilities. 
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Furthermore, CoreWeave's underlying financials are so dramatically unstable that it's unclear how this company will last the next six months. As I'll get into, CoreWeave's founders are finance guys that have already cashed out nearly $500 million before the IPO^[2], but did so in a way that means that despite only retaining 30% of the company's ownership, they retain 82% of the voting power, allowing them to steer a leaky, poorly-built ship in whatever direction they see fit, even if doing so might send CoreWeave into the abyss.
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DDTL 2.0 also has a brutal covenant — that if CoreWeave raises any other debt, it must use that debt to pay off this debt. This raises the question as to how it’ll manage to pay the DDTL 1.0 balloon payment, should any future debt raised be used to satisfy the DDTL 2.0 loan. 

Footnotes on updates are by me, Remmelt:

1. ^{^}

   A new TD Cowen note puts it at double the initial figure: about 2 gigawatt of new data center projects abandoned by Microsoft. This is the equivalent of all of London's and Tokyo's data centers put together.

2. ^{^}

   CoreWeave's IPO was a dud. The amount raised was scaled back from $4 billion to $1.5 billion. As of writing, the share price is trading barely at the IPO price.