CoreWeave secures another $8.5B loan despite being mired in debt
Fair or not, CoreWeave, Inc. (CRWV) has in many ways become the face of what some analysts see wrong with the current investment frenzy in AI infrastructure by loading up on debt while profits appear to still be years away from happening.
The question with the neocloud company isn't really whether it can deliver on the massive investments it's making in building out its AI infrastructure, but rather how soon.
To be sure, the company has an estimated $66.6 billion in revenue backlog through key deals with tech giants like Nvidia Corporation (NVDA), Meta Platforms (META) and OpenAI, which has kept many analysts bullish on the company.
But for a company carrying total liabilities of roughly $46 billion against total assets of about $49.3 billion, there is also reason to be concerned about CoreWeave's business model.
In fact, in a client note in January, DA Davidson analyst Gil Luria said CoreWeave’s "long-term outlook remains dire," noting that the value of CoreWeave's equity is "still seen as worthless long-term" because "the entire value of the enterprise is owned by debt holders."
But on Tuesday, CoreWeave showed that its debt load might not prove to be an impediment to its growth strategy.
CoreWeave announced that it has closed a "landmark" $8.5 billion loan facility that it will be using to further expand its AI cloud platform. Furthermore, the delayed draw term loan received an investment-grade A3 rating from Moody's, which is the first time that has happened for a loan backed by high-performance computing (HPC) and a customer contract.
CoreWeave's shares surged more than 12% on Tuesday, leading a broader rally for AI stocks.
“We’re proud to partner with leading financial institutions on this landmark transaction as we continue to innovate within the capital markets while further reducing our cost of capital,” Brannin McBee, chief development officer and co-founder of CoreWeave said in a statement.
“This reflects confidence in AI adoption and represents continued market validation of our model that is proving both repeatable and scalable, enabling us to meet accelerating demand from our customers.”
Under terms of the loan, CoreWeave can borrow up to about $7.5 billion initially, with the ability to borrow a total of $8.5 billion as underlying assets reach stabilization.
CoreWeave has now secured equity and debt financing commitments totaling $28 billion over the past 12 months.
The company said in a press release that the A3 investment-grade rating shows its "progress in reducing its cost of capital and enhancing its credit profile."
The A3 rating represents a jump from the B rating CoreWeave had previously received on a loan, which is significant because it shows that rating agencies are reassessing the company's asset quality, especially as it relates to the billions in backlog revenue it has.
Better loan terms also reduce the cost of borrowing for CoreWeave and help accelerate its equity building.
MUFG and Morgan Stanley served as co-structuring agents and joint bookrunners on the loan facility with Goldman Sachs and JPMorgan serving as additional coordinating lead arrangers for the transaction.