Should CoreWeave and Nebius Group Investors Be Worried About Circular Financing? Here’s What the Numbers Say
Some investors are getting spooked by all the talk of circular financing in the artificial intelligence (AI) build-out, with the issue even being mentioned by Nvidia on its recent earnings call.
Nvidia has been investing significant capital from its balance sheet into AI labs and cloud computing providers — aka neoclouds — that are turning around and using that same money to buy Nvidia processors to equip their data centers.
Two companies taking part in such circular financing arrangements are CoreWeave (CRWV -1.12%) and Nebius Group (NBIS +2.28%), and their share prices are now down 41% and 30%, respectively, from their all-time highs.
With their share prices falling, should investors be worried about fragile financing for these neoclouds and the AI boom? Here’s what the numbers say.
Today’s Change
(-1.12%) $-0.92
Current Price
$80.93
Key Data Points
Market Cap
Day’s Range
$79.58 – $82.53
52wk Range
$60.55 – $153.20
Volume
15.6M
Avg Vol
28.1M
Gross Margin
24.39%
CoreWeave’s Nvidia backstop
CoreWeave was originally a cryptocurrency miner, but it pivoted to an AI cloud computing model to use its idle Nvidia GPUs. It turns out that it was sitting on a gold mine.
Through investments in more data centers powered by Nvidia chips, CoreWeave quickly scaled its revenue from nearly nothing to over $2.5 billion last quarter, with a run rate of $10 billion a year. To finance the necessary build-out, however, it raised capital in numerous ways and now has $35 billion in debt on its balance sheet.
Nvidia is helping CoreWeave in two ways. First, it directly invested in the neocloud, which is turning around and using the funds it received to buy Nvidia chips for its new data centers. Second, Nvidia is providing a backstop for CoreWeave: If the neocloud doesn’t find clients to lease all of the cloud computing capacity it’s building, Nvidia will buy that capacity itself (through April 13, 2032).
CoreWeave will need to keep riding its reputation as a reliable cloud provider, as its overall capital expenditures are slated to land between $35 billion and $39 billion in 2026. It is investing well ahead of its current revenue generation, banking heavily on future AI cloud spending.
Image source: Getty Images.
Nebius’s sneaky growth
Nebius Group operates on a smaller scale than CoreWeave, but it’s growing much faster. This business was spun out of the old Russian internet company Yandex, which was off-limits to Western investors because of sanctions. Now based in the Netherlands, the company is trying to build a massive neocloud operation.
Growth has been sound so far, up 454% year over year to $582 million last quarter alone. The company has been engaging in circular financing deals similar to CoreWeave’s, as well as booking large commitments from hyperscalers like Microsoft and Meta Platforms. There is strong momentum in Nebius’ business today, and it plans to continue investing in additional data centers to fulfill customer orders.
However, this puts it in the same category as CoreWeave, needing to invest heavily up front in capacity before it can earn revenue from those investments. It has spent $8 billion on capital expenditures through the first six months of this year alone, and it plans to spend more than $20 billion for all of 2026. To help finance this spending, it just raised $5.75 billion through an offering of convertible notes.
A tale as old as time
The boom in AI spending may look like a blessing today, but these neoclouds are setting themselves up for disappointment in the long term. Circular financing, also known as vendor financing, has been a popular strategy during many asset booms over the years. For example, during the dot-com bubble, telecommunications equipment providers invested heavily in debt based on the belief that demand for fiber optic capacity would grow at an exponential pace forever.
Turns out, it didn’t. Something similar could happen to neoclouds in the years ahead, despite how promising the growth path for compute demand looks today. CoreWeave itself boasts $104 billion in revenue commitments as of the end of last quarter, but that number does not tell investors how binding these commitments are. If the growth in AI demand from end consumers and enterprises slows down, it is possible that CoreWeave’s customers will back out of their commitments, leaving it high and dry.
The businesses may survive better than those in the dot-com bubble because Nvidia has a rock-solid balance sheet with plenty of capacity to backstop both of these businesses (and others) in a liquidity pinch. That does not necessarily make their stocks a buy, but it makes their bankruptcies less likely in a bear scenario.
