CoreWeave's GPU-Backed Debt Strategy Inspires AI Startups to Borrow Big

CoreWeave's (CRWV) GPU-backed debt strategy has inspired AI startups to borrow large amounts of money to grow quickly. Companies like Fluidstack are securing billions of dollars in loans using AI chips as collateral, but this strategy comes with risks, including the potential for debt struggles if chip prices drop or customer growth slows. CoreWeave is also looking for cheaper financing and has announced a deal to buy Core Scientific to tap into lower-cost infrastructure loans. Analysts have a Moderate Buy consensus rating on CRWV stock, but the average price target implies almost 50% downside risk.

CoreWeave's (CRWV) aggressive debt strategy has sparked a wave of borrowing among AI startups, with companies like Fluidstack securing billions of dollars in loans using AI chips as collateral. This rapid growth, however, comes with significant risks, including potential debt struggles if chip prices drop or customer growth slows. CoreWeave, in turn, is seeking cheaper financing and has announced a deal to buy Core Scientific to tap into lower-cost infrastructure loans. Despite analysts' moderate buy consensus, the average price target implies almost 50% downside risk.

CoreWeave's growth is undeniable, with revenue surging 420% year-over-year in Q1 2025 and a market cap of $88.1 billion. However, its valuation of 32.5x price-to-sales ratio has raised eyebrows, nearly double that of Snowflake (18.4x) and rivaling Cloudflare (35.1x) [1]. The company's reliance on two hyperscalers—Microsoft and an unnamed client, likely NVIDIA—creates a precarious balancing act. If either client shifts strategy or renegotiates terms, CoreWeave's financial foundation could crumble.

CoreWeave's debt burden stands at $10.6 billion, with $892 million in annual interest payments on its $2.3 billion Blackstone/Magnetar loan. The company's "take-or-pay" contracts with lenders mean it must generate revenue growth fast enough to service debt, a challenge compounded by its reliance on just two clients. CoreWeave's 2024 disclosure of "material weaknesses in internal financial controls" adds to investor unease [1].

CoreWeave's recent acquisition of Core Scientific, valued at ~$9 billion, aims to eliminate $10 billion in leasing overheads over the next 12 years and expand its data center footprint by approximately 1.3 GW of gross power capacity. This deal allows CoreWeave to tap into lower-cost infrastructure loans, potentially reducing its interest expenses and enhancing profitability [2, 3].

However, CoreWeave's depreciation policy raises concerns. While it depreciates its GPUs over 6 years, competitors like Nebius use a 4-year depreciation period, which could artificially suppress CoreWeave's operating expenses and boost its operating income [2]. The company's use of NVIDIA GPUs as collateral for debt financing also highlights the risks of relying on a single vendor.

Investment implications are mixed. Bullish investors see CoreWeave's $20 trillion AI market opportunity and backlog of recurring revenue as a "buy the dip" opportunity. However, bears point to the debt, losses, and execution hurdles as a recipe for disaster. Analysts' "Hold" consensus and the 12-month price target below $90 suggest caution [1].

CoreWeave's debt strategy is a double-edged sword. While it fuels rapid growth, it also exposes the company to significant risks. Investors must weigh these factors carefully before making a decision.

References:
[1] https://www.ainvest.com/news/coreweave-ai-growth-engine-debt-burdened-gamble-2507/
[2] https://wccftech.com/coreweave-crwv-depreciates-its-gpus-over-6-years-while-its-competitor-nebius-uses-a-4-year-depreciation-period/
[3] https://www.coreweave.com/news/coreweave-to-acquire-core-scientific