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One data center company may pop the AI bubble
Mighty fine bubble you have there… // Image by Kait Cunniff with DALL-E
CoreWeave, which sells the use of its data centers to AI giants like Microsoft and OpenAI, might be on an unsustainable and disastrous financial trajectory.
The Big Picture: CoreWeave is helping to power the AI gold rush by leasing out its data centers to companies like Microsoft and OpenAI. But beneath the boom is a towering stack of loans. And if AI doesn’t soon deliver on all the hype, the company could be the first domino to tip — potentially bringing down the whole sector with it.
Between the Servers: CoreWeave went public in March and is now valued at roughly $50 billion thanks to lucrative contracts with Meta and others.
The company raises huge sums to build data centers powered by Nvidia chips and then leases them out to potential competitors like Amazon, Google, Microsoft — and even back to Nvidia itself.
Coreweave succeeds by efficiently using the power needed for data centers. If they lose this advantage, though, they won’t be able to compete with giants like Amazon and Meta, who have deeper pockets.
Its biggest clients are also its investors and lenders, creating a circular, high-risk financing loop that depends on stock market performance rather than profitability.
By footing the bill for the expensive infrastructure that Big Tech would rather outsource, CoreWeave absorbs the risk while its clients get the upside of scalable AI compute.
Shutting Down: The company’s debt has been increasing at the same rate as AI hype. Even if AI does pay off, it might not succeed fast enough for CoreWeave to repay its numerous loans before investors come calling.
Prediction: A contraction in the AI market could cause CoreWeave and other data center companies to default on their debts, which could break confidence in giants like Nvidia and even spark a bank run.
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Today’s email was written by Luke Perrotta.
Edited by Nick Comney. Polled and Copy-edited by Kait Cunniff.
Published by Darline Salazar.