The more you earn, the more you lose! Amid the AI computing frenzy, how big is the "debt bomb" lurking behind CoreWeave (CRWV.US)?

According to reports from Zhitong Finance APP, Credit Strategist columnist Michael Levitt has warned that while investors in emerging cloud provider CoreWeave (CRWV.US) are excited by explosive growth in computing power demand, they are overlooking "hidden landmines" on the company's balance sheet that could threaten its survival.

Concerns Behind Surging Revenues: The More It Earns, The Deeper The Losses

CoreWeave recently reported better-than-expected second-quarter financial results. Data shows Q2 revenue increased by 112% year-over-year to $2.58 billion, with backlogged orders surpassing $100 billion, triggering a 20% post-earnings rise in share price and extending year-to-date gains to 47%. The market is clearly fixated on the company's growing backlog and management's optimistic outlook for future demand.

However, the market ignored the doubling net loss—Q2 net loss expanded from $290 million a year earlier to $626 million. Levitt believes the company's rapid growth is masking a highly leveraged financial structure that requires continual external capital infusions.

In an August 13 article, Levitt wrote: “These numbers depict a shockingly leveraged company that will need to miraculously turn things around if it wants to survive.”

Debt Pressures at Breaking Point

According to CoreWeave’s financial disclosures, the company’s debt-to-equity ratio exceeds 800% (including long-term debt and operating leases), the working capital gap is over $10 billion, and quarterly interest expenses stand at about $640 million. Its quarterly report contains over 50 pages of risk factor disclosures, outlining a multitude of operational hazards.

CoreWeave faces significant repayment pressure: by 2030, it needs to repay $20.6 billion in debt, including $4.4 billion by the end of 2026, $6.2 billion in 2027, $4.4 billion in 2028, $2.4 billion in 2029, and $3.2 billion in 2030.

Even more concerning is that CoreWeave has at least $10 billion in operating lease obligations during this period. Annual interest expense has already exceeded $2.5 billion—before including the $2.6 billion in new financing completed in August and $1.2 billion borrowed from the revolving credit facility.

Levitt estimates that CoreWeave will need to generate or raise at least $10 billion annually just to cover financing obligations—excluding day-to-day operational spending and hefty capital expenditures.

Soaring Financing Costs and Questionable Ratings

CoreWeave’s latest $2.6 billion borrowing carries a high interest rate of around 9.875%, illustrating a sharp rise in its cost of capital. Levitt warns that as CoreWeave competes for financing with much larger, higher-rated tech giants, its future debt financing costs could reach 10% or even higher.

Levitt also criticizes rating agencies for being too lenient with CoreWeave, underestimating its financial risks. Currently, S&P Global Ratings gives it a B+, Moody’s rates it Ba3, and Fitch assigns it BB-, with some asset- and customer-backed transactions even receiving higher ratings.

Levitt states that unless CoreWeave can prove it can achieve profitability and reduce its debt load, its reasonable rating should be in the B- to CCC+ range. He writes: “This company is far from deserving its B+/Ba3/BB- rating; its market value could evaporate overnight.”

Levitt believes investors are excessively focused on CoreWeave’s income statement and revenue growth, while paying insufficient attention to its balance sheet, cash flow statement, and footnotes to its financials. He asserts that these disclosures unveil risks hidden beneath rapidly growing sales figures.

The bond market has already delivered a stern warning: CoreWeave’s credit default swap (CDS) spreads surged to 855 basis points in July, implying a five-year default probability as high as 50%.

Equity Financing as a Potential Exit

Levitt says CoreWeave should take advantage of its high share price by selling as much stock as possible. Although issuing new shares may dilute current shareholders, it would offer the company an opportunity to pay down debt and reduce dependence on expensive borrowing.

He describes CoreWeave as a financing-driven creation of the AI infrastructure investment boom. While it enjoys support from Nvidia and investment firm Magnetar, its expansion is fueled largely by debt rather than equity financing. This makes CoreWeave more vulnerable than major tech companies, which can use their own cash flow to fund data center construction and borrow at far lower rates.

Levitt warns that if AI infrastructure investment slows, or if the sector builds excess capacity beyond actual customer need, risks will rise further. In such a scenario, CoreWeave may be left shouldering costly data centers and financing obligations—while competing against larger, financially stronger companies.

He states: “The worst thing for a company is to become the most highly-leveraged player in an industry that’s been overextended. And that’s precisely where CoreWeave finds itself now.”

Wall Street Analysts Are Cautiously Optimistic

While Levitt issued a stern warning, Wall Street investment bank Morgan Stanley is also taking a cautious stance on CoreWeave.

Morgan Stanley maintains an “Equal-Weight” rating and a $99 price target for CoreWeave, acknowledging strong demand for GenAI data centers but citing high debt and customer concentration as key constraints on valuation. The firm expects CoreWeave’s free cash flow to remain negative through 2028, with debt projected to rise to about $38 billion by the end of 2026.

Overall, Wall Street analysts have assigned CoreWeave a “Moderate Buy” rating, with an average price target of $136.48—about 30% higher than the latest closing price.