CoreWeave exceeded Wall Street's expectations. Will this ease concerns about neo-clouds?

CoreWeave, a provider of computing power for artificial intelligence, exceeded analysts’ expectations for the quarter and raised its full-year forecast. However, the company’s profits are being “eaten up” by loan payments. It has a high debt burden, and the market is increasingly skeptical about its ability to finance further growth.

CoreWeave has managed to allay investors’ concerns about a potential slowdown in business, according to Bloomberg. Shares of the cloud computing company, which had been hit by a sell-off, rose in after-hours trading following the release of its earnings report. CoreWeave’s stock jumped more than 6%. Shares of its closest competitor, Nebius, rose 6.5%. Iren’s stock gained nearly 3%.

CoreWeave expects its revenue this year to range from $13 billion to $13.3 billion. Previously, it had projected a maximum of $13.2 billion, while the LSEG consensus estimate was $12.86 billion, according to CNBC.

Last quarter, CoreWeave's revenue rose 168% to $3.66 billion. Analysts had expected an average of $3.56 billion, according to data compiled by Bloomberg.

The order backlog—a metric closely watched by investors—has grown significantly. The value of future revenue from signed contracts stood at $132.5 billion as of the end of September, compared with $104 billion at the end of June. Demand already exceeds the company’s available capacity through the end of 2027 by a factor of ten, the company reported.

CoreWeave's capital expenditures—that is, investments in physical infrastructure—totaled $14.5 billion, compared with a market forecast of $11.9 billion, according to MarketWatch . Neocloud also raised the lower end of its annual spending forecast: it now plans to spend between $37 billion and $39 billion.

By the end of September, CoreWeave's debt burden had approached $47 billion, the company reported.

Despite rapid revenue growth, debt payments are weighing on CoreWeave’s profits, MarketWatch notes. Operating income more than quadrupled year-over-year to $207 million, but after accounting for interest expenses on loans, the company reported a net loss of $709 million, or $1.27 per share. For the quarter, these expenses totaled $846 million, compared with $310 million a year earlier. However, Wall Street had expected a larger loss: $1.46 per share. In the fourth quarter, interest expenses will rise even further—to $1.05–1.15 billion, according to statements by management cited by MarketWatch.

At the same time, the company expects its adjusted net loss to “decrease significantly in 2027,” CoreWeave CFO Nitin Agrawal said during the quarterly earnings conference call. According to him, the cloud provider is on track to post positive adjusted net income in the first half of 2028, as well as for the full year 2028.

CoreWeave is taking steps to reduce its interest payments as it expands its business, CEO Michael Intrator said. According to him, the company’s weighted average cost of debt was 7.9%, down 250 basis points from last year. The company plans to finance the remainder of its infrastructure development costs through term loans with deferred drawdowns tied to specific customer contracts.

Agraval added that CoreWeave expects to raise less than $5 billion in additional funding at the parent company level by the end of 2027. Neocloud will secure most of the capital it needs next year through customer prepayments and funding from partners.

"There are still weaknesses," said Gil Luria, an analyst at D.A. Davidson, in an interview with Bloomberg. “Their interest expenses far exceed their adjusted operating profit—which suggests that data center earnings aren’t enough to service the debt the company is accumulating,” he said. “This business has structural problems, which is why it’s under such intense pressure.”

“A company can successfully execute its plans while still facing tighter financing conditions,” Joe Taige, portfolio manager at Equity Armor Investments, commented on the report to CNBC. “Strong demand is encouraging, but the cost and availability of capital remain critical.”

CoreWeave is unlikely to go bankrupt anytime soon: it has the funds to fulfill its existing contracts. However, growth over the next five years will require additional capital, Morningstar analyst Luke Young noted on Monday. “If they want to raise money through a stock offering, the market will work against them, since the stock has fallen sharply,” he said.

CoreWeave provides computing power to clients such as OpenAI, Meta Platforms, and Microsoft. To meet growing demand, it has raised tens of billions of dollars and is actively investing in AI chips and data centers. But concerns are growing on Wall Street about whether the company can continue to finance its expansion, given that conditions in the debt market—where it raises a significant portion of its capital—have tightened, according to CNBC. As investors lose interest in AI investments, lenders’ appetite for bonds issued by non-cloud providers is waning. Yields on some CoreWeave bonds recently exceeded 16%. If the company loses its ability to borrow, it could jeopardize its ability to fulfill its contracts, Barron’s warned.

Concerns about the cost of financing AI infrastructure for non-cloud providers intensified in October: at that time, CoreWeave’s credit risk metric hit a record high amid a sell-off of its high-yield bonds. The spread on the company’s five-year credit default swaps—which serve as insurance against default—jumped 50% over the past month.

Debt problems have been one of the factors driving the collapse in the stock prices of non-cloud companies: over the past month, their shares have lost nearly half their value. CoreWeave’s main competitor, Nebius, will release its quarterly earnings report on November 12 before the U.S. market opens.

This article was AI-translated and verified by a human editor