JPMorgan: CoreWeave's Business Model Remains Strong Despite Concerns Over Cash Burn

Huoxing Finance reports that, on October 20, according to Bloomberg, J.P. Morgan analysts stated that investor concerns regarding CoreWeave’s rising debt and rapid cash burn may be overstated, as the company’s funding needs primarily stem from aggressive expansion rather than poor economics of individual projects. Previously, rising bond yields intensified market worries about its debt-financed growth, causing the company’s stock to drop approximately 20% last week. J.P. Morgan believes CoreWeave’s business model remains robust, with strong demand for computing power and long-term “take-or-pay” contracts that secure customers before new capacity comes online. According to their estimates, the unlevered internal rate of return on a typical five-year contract is around 15%, exceeding the company’s estimated weighted average cost of capital of 9% to 11%; upon contract expiration, GPUs can be re-contracted to generate additional revenue. However, aggressive expansion is still expected to pressure short-term cash flow. The bank estimates that each fully operational gigawatt of capacity generates annual revenue of $10 billion to $15 billion, but requires over $35 billion in upfront capital expenditure to build. The company may not generate sufficient cash from existing operations to fund expansion until 2030.