CoreWeave Earnings: 3 Things Investors Need To Know

CoreWeave (NASDAQ:CRWV) stock has tumbled over the last month as concerns about its balance sheet mounted in response to a social media post showing its bond yields have reached as high as 15%.

That reflects both rising interest rates and investor suspicion about the company's ability to repay its debt. CoreWeave has been heavily dependent on debt to fund its scorching-hot growth, which has caused its interest expense to soar, leading to significant losses on both the income statement and in cash flow.

For that reason, CoreWeave's third-quarter earnings report was highly anticipated, and the company exceeded expectations. Revenue jumped 168% in the quarter, ahead of estimates, though its debt and interest expense continued to grow as well.

Investors initially seemed ambivalent about the report, as the stock ticked higher after hours, but after the earnings call, it started to rally, jumping double digits. Let's dig behind the headline numbers and take a look at three things investors should know about CoreWeave's earnings report.

Image source: Getty Images.

1. The debt worries look overblown

Based on conventional metrics like the current ratio, CoreWeave's balance sheet looks like a huge risk, with current liabilities more than double current assets. However, CoreWeave's situation is highly dynamic as it's growing revenue by triple digits in an economic boom that some have characterized as the biggest infrastructure build-out in history.

CEO Michael Intrator seemed to be referencing the concerns about rising bond yields when he told investors, "We will not use the unsecured debt market to fund our business at current yields, nor do we need to." He also noted that the company's weighted average cost of debt fell 250 basis points year-over-year to 7.9%, which should also reassure investors.

The company now plans to use delayed draw term loans matched to customer contracts to fund the majority of its capital expenditures. Those loans have historically priced at 225-550 basis points above the secured overnight financing rate (SOFR) depending on the customer. At today's rates, that would be less than 10% at the high end and closer to 6% at the low end. Importantly, those loans can be drawn from gradually, according to deployments.

That strategy should help ease the pressure on the balance sheet, and the company said in the next three months it would collect about $9 billion in prepayments and deposits, injecting debt-free cash into the business.

2. GPU prices are going up

GPUs and semiconductors more generally are supposed to depreciate over time due to both obsolescence and a limited useful life, but these days the opposite is happening. Rampant demand is causing GPU prices, even on older chips, to spike, and CoreWeave is benefiting.

Intrator said that pricing for Amperes and Hoppers, Nvidia GPUs that are three and two generations old, respectively, rose 30%-50% sequentially, and are now above their original contract price.

That creates a strong tailwind for CoreWeave over the coming quarter, and it's signed contracts for beyond their depreciable lives, which will help drive profits in the coming years. CoreWeave said that 130,000 GPUs will come off contract in 2027 and another 170,000 GPUs in 2028, which will create a significant margin tailwind.

3. Demand is comfortably ahead of supply

The GPU pricing is one indication of the strength of demand, but management was asked what would happen when supply-demand normalizes, and they essentially responded by saying they don't see that happening anytime soon.

Intrator said, "The concept that there is infrastructure coming to market faster than demand is growing has been a prevailing view that has existed now for several years. What we have seen... is that demand for compute is growing faster than the capacity to deliver that infrastructure."

CoreWeave has sold out capacity through 2027, and has sold everything it's put on the market for 2028.

At some point, the market will stabilize, but CoreWeave could be generating $100 billion in annual revenue by then. In the meantime, the company will benefit from excess demand, as the latest numbers show.

Jeremy Bowman has positions in CoreWeave and Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.