CoreWeave earnings put debt-fueled AI build-out under scrutiny

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CoreWeave faces a pivotal test when it reports its third-quarter financial results after the bell on Tuesday.

The market will be closely watching what the neocloud company says about artificial intelligence spending — and how it plans to finance its infrastructure buildout. The outcome could either calm concerns over its debt or stoke more fear.

"Investors need neoclouds to quantify how much financing they expect to raise to execute on existing backlog," Wolfe Research said in a note Monday. "We think outlooks that communicate when and which avenues of funding will be tapped will increase investor confidence."

CoreWeave stock and bonds have come under pressure as fears deepened about the enormous amount of debt it has taken out to build its data centers.

Its stock is down roughly 40% over the past month. Meanwhile, the yield on its 9.75% bond due in 2031 was 15.5% on Tuesday, after jumping to 16.7% on Thursday as investors digested the election results and possible roadblocks to data center construction. Bond yields move inversely to prices.

CoreWeave's 9.75% bond due in 2031

The spread on its five-year credit default swaps — which is insurance against default and considered a barometer of perceived credit risk — is also at levels that are considered distressed. On Tuesday, its CDS spread stood around 1,152 basis points, after rising above its October peak to close at 1,278 basis points on Thursday. Rising CDS spreads mean investors view the debt as riskier.

CoreWeave's five-year credit default swaps

In addition, the New Jersey-based company's leverage is high. CoreWeave has a debt-to-equity ratio of 702%, up from almost 291% a year ago.

CEO Michael Intrator has sought to quell investor fear, posting on LinkedIn after the election last week that the company doesn't anticipate "any impact to CoreWeave's existing customer commitments or associated backlog as a result of shifts in the political landscape."

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