Nvidia throws US$2bn lifeline to under-fire CoreWeave
CoreWeave has been thrown a lifeline from its main supplier after chipmaker Nvidia agreed to inject US$2bn of equity into the cloud computing provider and offered to backstop the company’s plans to build more than 5GW data centre capacity over the next five years.
The deal is a clear attempt to assuage concerns about the financial viability of CoreWeave’s business model, which is predicated on signing big contracts to supply compute to AI customers – and then taking on huge amounts of debt to build capacity to fulfil those commitments.
It’s a strategy that has come under scrutiny in recent months, triggering a potentially dangerous feedback loop in markets where the company’s bond prices sell off and drive up its cost of funding – reinforcing concerns about whether the model is financially viable.
CoreWeave has about US$14bn of debt, including US$3.8bn of bonds that were sold last year. Those bonds have sold off in recent months, dipping below 90 cents on the dollar and pushing its five-year financing costs above 12% – threatening its ability to raise new funds to finance its commitments.
“This is about primarily derisking the concerns over CoreWeave's financing and capital structure,” said Alex Platt, an analyst at West Coast boutique investment bank DA Davidson, who estimates that the extra 5GW of capacity being built by the company could require as much as US$80bn in financing.
“It’s not about actually providing them the necessary capital to build,” he said. “But it does add equity into the conversation at a time when CoreWeave will clearly have to take on significantly more debt. This is where the backstop comes into play.”
Supporting role
CoreWeave was originally set up to mine ether using graphics processing units but later ditched that model after a crash in cryptocurrency prices – repurposing the chips to crunch data for AI customers. The New Jersey company is yet to turn a profit.
Under the terms of the deal, Nvidia agreed to buy 22.9m CoreWeave shares at US$87.20 each, a 6% discount to the previous close. The companies plan a “deepening” of their relationship, with plans to “leverage Nvidia’s financial strength” to accelerate CoreWeave’s infrastructure buildout.
Nvidia is the world’s most valuable company with a market capitalisation of more than US$4.6trn. It is also the leading provider of graphics processing units favoured by AI companies to crunch data and train AI engines.
“AI is entering its next frontier and driving the largest infrastructure buildout in human history,” said Nvidia chief executive Jensen Huang after the deal with CoreWeave was announced. “Together, we’re racing to meet extraordinary demand for Nvidia AI factories – the foundation of the AI industrial revolution.”
This is not the first time Nvidia has offered financial support to CoreWeave. It was revealed that it owned a 6% stake in the cloud computing provider at the time of its IPO in March after a US$320m investment made by the chipmaker as part of a supply deal in 2024.
Nvidia also stepped in to support CoreWeave's IPO after disappointing interest in the deal. The chipmaker was forced to downsize the offering by about 40% to US$1.5bn, with Nvidia eventually stepping in with a surprise US$250m anchor order that helped get the deal over the line.
“Two billion dollars is a mere drop in the ocean for Nvidia,” said one Silicon Valley-based banker who has worked with the company in the past. “It’s a small price to pay not just to ensure that CoreWeave gets through this bump in the road, but also to lock customers into the Nvidia chip ecosystem.”
Circular deals
The deal will fuel criticism about the circularity of many supply deals in the AI space. As well as its investments in CoreWeave, Nvidia has also bought equity in other customers including rival data centre operator Applied Digital. The latest CoreWeave purchase almost doubles its stake to 11.5%.
Benefits from the deal already seem to be accruing. CoreWeave shares soared as much as 17% after the deal was announced before closing 5.7% higher. Its bonds also rallied, pushing down yields and the theoretical cost of raising the funds it now needs to complete its buildout plans.
“What this arrangement does for CoreWeave is that it allows them to get more attractive rates on their debt capital,” said Platt, who said the “vote of confidence” from Nvidia would improve the viability of CoreWeave's business model.