CoreWeave's booming growth is coming up against the cold reality of rising interest rates.
CoreWeave's booming growth is coming up against the cold reality of rising interest rates.
CoreWeave (CRWV -0.44%) has taken center stage in the AI bubble debate.
After venture capital investor Chamath Palihapitiya posted a chart on X last week showing that bond yields on the neocloud operator's debt have risen as high as 15%, CoreWeave shares have spiraled. The stock, the largest of the so-called neocloud companies and posting triple-digit revenue growth, has plunged 24% over the last week and is now trading at its lowest level since shortly after its IPO last March.
Concerns about CoreWeave brought down the broader chip and tech sectors last week, and the stock could continue to serve as an avatar for the broader AI sector as investors debate its future.
Why CoreWeave has become a microcosm of the AI trade
CoreWeave embodies what both AI bulls and bears see in the AI sector. As a neocloud operator, the company's business model is essentially to borrow money to buy GPUs and then rent out the computing power from those GPUs.
It's a straightforward business model, and it's delivered enormous growth since the company pivoted from crypto to AI around 2022. In its second quarter, CoreWeave reported 112% revenue growth to $2.58 billion, showing the surging demand for AI compute. That has pleased AI bulls and explains why the company's market cap jumped to around $100 billion at one point.
However, CoreWeave is also unprofitable and burning a ton of cash. In the second quarter, it had a generally accepted accounting principles (GAAP) operating loss of $49 million and a net loss of $626 million due to $640 million in interest expense.
CoreWeave reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of $1.51 billion, but that's not the best metric to judge the company on because its business model is highly dependent on capital expenditures and depreciation. Through the first half of the year, the company has had negative free cash flow of $10.5 billion, and it has now accumulated $34 billion and $16 billion in operating lease liabilities.
What's Kevin Warsh got to do with it?
Averytin News Financial update.