CoreWeave beats Wall Street expectations for 3Q. Will it ease fears around neoclouds?

CoreWeave, a provider of computing power for AI, beat analysts’ third-quarter expectations, and the management raised its full-year guidance. Still, interest payments are eating into earnings. CoreWeave has a lot of debt, and investors are increasingly questioning its ability to fund further growth.

Overall, CoreWeave eased investor concerns about a potential slowdown in its business, Bloomberg reports. Neocloud stocks, which had been hit by a selloff, rallied in after-hours trading on Tuesday after the results. CoreWeave jumped more than 6%. Its closest rival, Nebius, gained 6.5%. IREN climbed almost 3%.

The management now expects CoreWeave to generate $13.0-13.3 billion in revenue this year. The previous guidance topped out at $13.2 billion, while the LSEG consensus estimate was $12.86 billion, CNBC writes.

CoreWeave’s revenue rose 168% to $3.66 billion in the third quarter. Analysts had expected $3.56 billion on average, according to data compiled by Bloomberg. The order book, a measure closely watched by investors, grew sharply. Future revenue from signed contracts totaled $132.5 billion at the end of September versus $104 billion at the end of June. The company said it already has 10 times as much qualified demand as available capacity through the end of 2027.

CoreWeave’s capital expenditures totaled $14.5 billion versus the $11.9 billion Wall Street had expected, MarketWatch reports. The management also raised the low end of its full-year capex guidance and now expects to spend $37-39 billion.

CoreWeave’s debt approached $47 billion at the end of September, the company said. Despite soaring revenue, debt costs are weighing on the business, MarketWatch writes. Operating income almost quadrupled year over year to $207 million, but after accounting for interest expense, the company posted a net loss of $709 million, or $1.27 per share. Interest expense totaled $846 million for the quarter versus $310 million a year earlier. Wall Street had expected a wider loss of $1.46 per share. The management expects interest expense to climb further in the fourth quarter, to $1.05-1.15 billion, according to MarketWatch.

CoreWeave CFO Nitin Agrawal said on the earnings call that he expects the adjusted net loss to “reduce meaningfully in 2027.” He said the neocloud is on track to post positive adjusted net income in the first half of 2028 and for the full year.

CoreWeave is taking steps to lower its borrowing costs as it expands, CEO Michael Intrator said. The company’s weighted average cost of debt was 7.9%, down 250 basis points from a year earlier. Intrator noted the management expects to finance most of the remaining capex needed to fulfill the existing order book through delayed-draw term loans tied to specific customer contracts.

Agrawal added that the management expects to raise less than $5 billion in additional parent-level financing through the end of 2027. The neocloud will get most of the capital it needs next year from customer prepayments and financing from partners.

Weaknesses remain, D.A. Davidson analyst Gil Luria said in a Bloomberg interview. “Their interest expense is far higher than adjusted operating income – that tells you that the business they generate from these data centers is not enough to pay down the debt that they’re accruing,” he reckons. “It’s a structurally challenged business, that’s why it’s been under so much pressure.”

“The business can execute well and still face a tougher financing environment,” Joe Tigay, a portfolio manager at Equity Armor Investments, told CNBC in response to the results. “Strong demand is encouraging; the cost and availability of capital remain critical.”

CoreWeave is unlikely to go bankrupt anytime soon and has the money to deliver on its existing contracts. But it will need more capital to grow over the next five years, Morningstar analyst Luke Yang said on Monday. “If they want to issue money through equities, the stock price is not working in their favor, because the stock has been beaten down,” he said.

CoreWeave supplies computing power to customers including OpenAI, Meta Platforms, and Microsoft. To meet rising demand, it has borrowed tens of billions of dollars and is spending heavily on AI chips and data centers. But Wall Street is increasingly concerned about whether CoreWeave can keep funding its expansion as conditions tighten in the debt market, where it raises much of its capital, CNBC reports. As investors sour on the AI trade, lenders’ appetite for neocloud bonds is waning. Yields on some CoreWeave bonds recently topped 16%. If the company loses access to borrowing, it could struggle to deliver on its contracts, Barron’s warns.

Concerns about what it costs neoclouds to finance AI infrastructure intensified in October, when a measure of CoreWeave’s credit risk hit a record amid a selloff in its high-yield bonds. The spread on its five-year credit default swaps, which provide protection against default, jumped 50% over the last month.

Debt concerns helped drive the rout in neocloud stocks, which lost almost half their value in a month. CoreWeave’s main rival, Nebius, is set to report quarterly results on Thursday before U.S. markets open.