CoreWeave: Strong Backlog Isn't Enough To Offset Leverage Risks

The global AI infrastructure sector is experiencing a seismic shift, driven by surging demand for cloud computing and advanced GPU capabilities. CoreWeave, a key player in this space, has positioned itself at the forefront of this transformation, leveraging long-term contracts with industry giants like OpenAI and Microsoft to secure a robust revenue backlog of $55.6 billion as of September 2025. However, beneath this veneer of growth lies a precarious financial structure that raises critical questions about the company's ability to balance AI-driven expansion with long-term sustainability.

The Allure of Growth: A Backlog-Driven Narrative

CoreWeave's third-quarter 2025 results underscore its dominance in the AI infrastructure market, with revenue surging to $1.36 billion-a 134% increase from the same period in 2024. This growth is underpinned by a $55.6 billion revenue backlog, reflecting multi-year commitments from clients such as Meta and OpenAI. The company's business model-centered on deploying cutting-edge NVIDIA GPUs in AI-optimized infrastructure-has enabled it to achieve GPU utilization rates exceeding 50%, far outpacing legacy providers' 15%–25%. Strategic partnerships with NVIDIA, including access to the Blackwell GPU portfolio and reverse compute leases, further solidify its competitive moat.

Yet, this growth trajectory is not without its shadows. The company's aggressive capital expenditures, funded largely through debt, have left it with a net debt of $12.1 billion as of September 2025. This places CoreWeave at the upper end of the AI infrastructure sector's debt-to-EBITDA benchmarks, which typically range between 4.5x and 5.5x. While its leverage is not uncommon in a capital-intensive industry, the company's interest coverage ratio of 0.20 times-indicating that EBIT covers just 20% of interest expenses-signals severe financial strain. For context, Equinix, a leader in data center REITs, maintains an interest coverage ratio of 3.39x, highlighting the stark contrast in financial resilience.

The Leverage Conundrum: A Double-Edged Sword

CoreWeave's debt-fueled expansion strategy has been a double-edged sword. On one hand, it has enabled the company to scale rapidly, adding hundreds of megawatts of GPU-ready capacity in the U.S. and Europe. On the other, it has exposed the firm to significant refinancing risks. The company's interest expenses alone ballooned to $311 million in Q3 2025, up from $104 million in the prior-year period. With EBIT declining by 12% year-over-year, CoreWeave's ability to service its debt is increasingly reliant on external financing and the assumption that AI demand will remain unshaken.

Analysts warn that even minor disruptions in the AI sector-such as slowing GPU price trends or reduced client budgets- could amplify CoreWeave's vulnerabilities. For instance, if major clients like Microsoft or OpenAI shift toward in-house infrastructure or renegotiate terms, the company's revenue visibility could erode rapidly. Furthermore, the sector's broader debt dynamics are cause for concern. Hyperscalers like Amazon and Microsoft collectively issued $121 billion in new debt in 2025 to fund AI and data center expansion, driving up credit spreads and increasing the cost of insuring such debt through credit default swaps. This environment raises the specter of an "AI CapEx bust" if returns on infrastructure investments fall short of expectations.

Mitigating Risks: A Path Forward?

CoreWeave is not blind to these risks. The company has taken steps to strengthen its capital structure, including amending loan facilities to reduce borrowing costs and extending debt maturities. Its $1.94 billion cash reserves as of September 2025 provide a buffer, albeit one that is dwarfed by its $12.1 billion net debt. Additionally, take-or-pay contracts with clients offer some stability, ensuring cash flows even in a downturn.

However, these measures may not be sufficient to address the structural challenges. The company's reliance on NVIDIA for GPU technology and its concentration of revenue among a few clients create single points of failure. If NVIDIA delays product launches or clients reduce spending, CoreWeave's margins and growth could suffer. Moreover, the AI infrastructure market is becoming increasingly competitive, with rivals like Applied Digital expanding their capacity pipelines. This competition could pressure CoreWeave to further leverage its balance sheet, exacerbating its debt burden.

Conclusion: A Delicate Balancing Act

CoreWeave's story is emblematic of the broader AI infrastructure sector's paradox: unprecedented growth opportunities coexist with existential financial risks. While its strong backlog and strategic partnerships position it as a critical enabler of the AI revolution, its leverage profile demands caution. Investors must weigh the company's potential to capitalize on AI's long-term tailwinds against the near-term risks of debt overhang and sector volatility. For CoreWeave to thrive, it must demonstrate not only the ability to execute its growth plans but also the discipline to align its capital structure with the realities of a maturing market.