Strong AI compute demand offset by heavy debt and financing risks

CoreWeave's business is truly a mixed bag. CoreWeave's stock price surged nearly 25% last night. After reviewing its latest earnings report, I found the company's current situation quite interesting. On one hand, there is an oversupply of demand for AI computing power, with orders pouring in. On the other hand, debt is snowballing, and profits are insufficient to cover interest payments. Let's look at the financials first. Q3 revenue was $3.661 billion, a year-over-year increase of 168%, with backlog orders reaching $132.5 billion. The full-year revenue guidance has also been raised to $13 billion to $13.3 billion. This growth rate is indeed astonishing. Even more strikingly, management stated that the potential computing power demand from customers is currently about 10 times the company's remaining available capacity. (All AI bosses say this) Moreover, not only is demand robust, but prices are also rising. In Q3, rental prices for CoreWeave's previous-generation Ampere and Hopper GPUs increased by 30% to 50% quarter-over-quarter. In the past, people worried that since Nvidia releases new GPUs every year, old equipment would quickly depreciate and eventually become expensive e-waste? But CoreWeave's message seems to be: everyone else, stop worrying unnecessarily... Old cards can still be rented out, and even at higher prices than original contracts. Furthermore, they expect over 130,000 GPUs to expire in 2027 and another 170,000 in 2028. At current prices, if these devices can be successfully re-rented, potential additional annualized revenue could approach $10 billion by 2028, without needing to spend money purchasing these GPUs again. Of course, these are all management's current projections. However, here comes the part of CoreWeave that truly causes hesitation. In Q3, the company achieved an operating profit of $207 million, but net interest expenses alone reached $846 million, resulting in a net loss of $709 million. As of the end of September, total debt had reached $46.9 billion. Even more staggering is that the company expects capital expenditures of $37 billion to $39 billion this year, roughly three times its full-year revenue. In short, this is a business that requires constant cash injection and financing just to maintain high-speed expansion. The question is, as debt grows larger and larger, will the capital market still be willing to lend to it? This is where the most significant new change in this earnings report lies. Management indicated that they expect to receive approximately $9 billion in customer prepayments and deposits over the next three months, with over $3 billion coming from renewals of existing computing capacity. Simultaneously, the company is increasingly using customer contract-backed project loans to reduce reliance on high-cost unsecured bonds. Put simply, CoreWeave is trying to shift more financing pressure onto customers and projects themselves, attempting to offload financial burdens. This mirrors Oracle's recent plan to alleviate funding pressures; after all, money doesn't appear out of thin air, and someone always has to foot the bill. The company has even provided a timeline, expecting adjusted net profit to turn positive in the first half of 2028. Therefore, my assessment of this earnings report remains: AI computing demand is still solid, and CoreWeave's operational performance is better than the market imagined. But strong demand does not mean shareholders can make money at this stage. Will the person who planted the tree always be the last one to enjoy its shade?