Why CoreWeave's Debt-Laden AI Play Is a Growing Risk for Investors

The AI data center boom has created a paradox: companies like CoreWeave Capital, which are at the forefront of this technological revolution, are simultaneously building infrastructure and accumulating unsustainable debt. For investors, the question is no longer whether AI will reshape industries but whether firms like CoreWeave can survive the financial strain of their own ambition.

A High-Stakes Capital Structure

CoreWeave's financial leverage is staggering. As of Q3 2025, its debt-to-capital ratio stood at 0.73, with total debt exceeding $14 billion and lease obligations ballooning to $34 billion through 2028. This debt burden is compounded by a razor-thin interest coverage ratio of 0.17, meaning its operating income barely covers interest expenses. For context, the AI data center industry's average debt-to-EBITDA ratio has surged to 5.3x in 2025, up from 3.7x in 2023. CoreWeave's adjusted EBITDA of $838 million in Q3 2025-a 121% year-over-year increase-fails to offset its $310.6 million quarterly interest expense, which has tripled compared to 2024.

The company's aggressive expansion strategy, while driving revenue growth to $1.36 billion in Q3 2025, has left it with a net loss of $41 million for the quarter. This mirrors broader industry trends: Oracle, for instance, borrowed $38 billion in October 2025 for data center construction, leveraging private credit markets to avoid corporate bond scrutiny. Such borrowing is not without consequences. Oracle's credit default swap spreads doubled to 88 basis points, signaling heightened default risk. CoreWeave, meanwhile, has secured a speculative-grade B+ rating from S&P and Ba3 from Moody's, with the latter noting its reliance on GPU collateral and negative free cash flow until 2026.

Valuation Multiples Under Scrutiny

CoreWeave's valuation appears disconnected from its fundamentals. With a market capitalization of $44.0 billion as of Q3 2025, the company trades at a P/EBITDA multiple of approximately 52.8x (calculated using its $838 million EBITDA and $44 billion market cap). This contrasts sharply with the Cloud 100 Benchmarks Report 2025, which notes a normalization of private cloud company valuations to 23x from 26x in prior years. CoreWeave's P/E ratio, meanwhile, is negative (-45.8x to -53.4x), reflecting persistent net losses despite revenue growth.

The disconnect is even starker when compared to industry peers. The top five AI hyperscalers-Meta, Google, Amazon, Microsoft, and CoreWeave-collectively issued $121 billion in debt in 2025, quadrupling the previous five-year average. Yet, while Meta and Google leverage $60 billion in cash reserves to offset debt, CoreWeave lacks such liquidity. Its proposed $1.5 billion senior unsecured notes were rated B1 by Moody's, underscoring its non-investment-grade status.

A Bubble in the Making?

The AI data center sector's reliance on external financing is reaching critical mass. Morgan Stanley estimates that AI-related infrastructure spending will hit $2.9 trillion cumulatively from 2025 to 2028, with nearly half requiring debt. CoreWeave's strategy of amending loan facilities for favorable terms may delay a reckoning, but it cannot eliminate the risk of a liquidity crunch. The company's lease obligations alone-$34 billion through 2028-exceed its current EBITDA, raising questions about long-term sustainability.

Investors must also consider the sector's exposure to interest rate volatility. With data center debt surging 112% to $25 billion in 2025, even minor rate hikes could exacerbate interest burdens. CoreWeave's credit ratings agencies acknowledge its "strong growth trajectory" but caution that customer concentration and GPU collateral risks could trigger downgrades.

Conclusion: A High-Risk Bet

CoreWeave's AI play is undeniably ambitious, but its capital structure and valuation multiples suggest a precarious balance. While the company's leadership in cloud infrastructure for AI workloads is a strategic advantage, its debt levels and speculative credit ratings paint a cautionary tale. For investors, the key question remains: Is the potential upside of AI-driven growth worth the risk of a debt-fueled collapse? In a sector where even industry giants like Oracle are grappling with leverage, CoreWeave's path to profitability may prove as volatile as its stock price.