#AI Could CoreWeave become the AI industry's “subprime bomb”? 🚨⚠️ This time, Jensen Huang's reassurances may not be enough.
Lately, Huang has been trying to shore up market confidence: the current turbulence will eventually pass, AI will transform every industry, and we're still at the beginning.
But Wall Street is no longer asking whether AI is useful. It's asking: how long will it take to earn back all the money borrowed to buy GPUs?
CoreWeave's expansion model is simple: buy GPUs, sign long-term computing contracts, then use those contracts and assets to raise financing and buy more GPUs. As long as customers pay on time and financing keeps flowing, the cycle can continue.
The problem is that if power shortages delay deliveries, revenue could be pushed back while interest payments still come due. Older GPUs also lose value as the technology advances. If new orders slow and renewal prices fall, making money and borrowing money could both become harder.
Revenue falls short of expectations, and borrowing gets more expensive; borrowing gets more expensive, and repaying debt gets harder. That's the “death spiral” the market fears—not just a few days of falling share prices.
Jensen Huang certainly has good reason to be bullish on AI. But Nvidia making money by selling GPUs doesn't mean the companies buying them will make their money back.
Long-term contracts and continued demand could support this business model, so it's too early to declare a “subprime crisis.” But to dispel market doubts, CoreWeave needs to show cash flow—not ask for faith.
Lately, Huang has been trying to shore up market confidence: the current turbulence will eventually pass, AI will transform every industry, and we're still at the beginning.
But Wall Street is no longer asking whether AI is useful. It's asking: how long will it take to earn back all the money borrowed to buy GPUs?
CoreWeave's expansion model is simple: buy GPUs, sign long-term computing contracts, then use those contracts and assets to raise financing and buy more GPUs. As long as customers pay on time and financing keeps flowing, the cycle can continue.
The problem is that if power shortages delay deliveries, revenue could be pushed back while interest payments still come due. Older GPUs also lose value as the technology advances. If new orders slow and renewal prices fall, making money and borrowing money could both become harder.
Revenue falls short of expectations, and borrowing gets more expensive; borrowing gets more expensive, and repaying debt gets harder. That's the “death spiral” the market fears—not just a few days of falling share prices.
Jensen Huang certainly has good reason to be bullish on AI. But Nvidia making money by selling GPUs doesn't mean the companies buying them will make their money back.
Long-term contracts and continued demand could support this business model, so it's too early to declare a “subprime crisis.” But to dispel market doubts, CoreWeave needs to show cash flow—not ask for faith.