CoreWeave uses prepayments and shorter contracts to fund AI growth

CoreWeave is altering its approach to funding the artificial intelligence boom, according to the company’s third-quarter earnings report released on Tuesday. The neocloud firm, which leases computing power for AI, stated it is increasingly requiring customers to pay in advance, securing loans against specific contracts, and pursuing short-term agreements that may result in higher pricing.

The company reported $3.66 billion in revenue, representing a 168% increase from the previous year, yet it also recorded a $709 million net loss and $846 million in quarterly interest expenses. CoreWeave CEO Michael Intrator said during Tuesday’s earnings call, “We will not use the unsecured debt market to fund our business at current yields, nor do we need to.”

Instead, the firm plans to utilise loans backed by specific customer contracts to finance the infrastructure needed to fulfil a backlog valued at $132.5 billion. CoreWeave anticipates receiving approximately $9 billion in customer prepayments and deposits over the next three months, including over $3 billion from new contracts for existing capacity that requires no further hardware investment.

Similar to rivals Nebius and IREN, which have used Microsoft prepayments to fund capacity, CoreWeave is shifting towards requesting that major technology firms pay for infrastructure buildouts. While upfront payments reduce immediate borrowing requirements, they commit the company to service prices that might become less favourable if compute demand continues to increase.

CoreWeave is also seeking to benefit from rising demand by securing more short-term contracts, which command significantly higher prices. The company implemented price increases of approximately 25% in July and an additional 10% later in the quarter, with prices continuing to climb to offset cost increases, according to Intrator.

“We are also allocating more capacity to short-term opportunities, where the pricing justifies it, selling capacity at more than $40 million per megawatt annually, while pricing for new infrastructure on four and five-year contracts is moving to $20 million to $25 million per megawatt,” the chief executive said. In August, the company finalised a $2.6 billion loan known as DDTL 5.5, which is designed specifically for shorter-term customer contracts and allows for borrowing in installments.

Although short-term deals enable higher and more frequent price adjustments, they involve trade-offs, as lenders typically prefer the predictable cash flow of longer-term contracts. While Wall Street reacted positively to the earnings, bond investors remain cautious, with yields on some company bonds exceeding 15% last month due to concerns regarding debt levels for data centre buildouts.

The strategy adopted by CoreWeave aims to boost profits while avoiding unsecured debt, though it introduces risks related to contract renewals and pricing. The company’s approach highlights the dependency of the AI infrastructure sector on sustained and currently unproven demand, and the publication has reached out to CoreWeave for further information regarding its loan facility.