The High-Stakes Financial Gambles Fueling the AI Revolution

CoreWeave, a data-center operator and former crypto-mining firm, is making waves in the tech industry with its high-stakes financial deals. The company, which went public in March, has seen its share price more than double, outperforming even the top tech stocks. CoreWeave recently announced multi-billion-dollar partnerships with OpenAI, Meta, and Nvidia, positioning itself as a key player in the AI revolution.

Massive Deals and Complex Finances

CoreWeave's business model is straightforward: it buys high-end computer chips and builds or leases data centers to house them, then rents out these resources to AI companies. However, its finances are anything but simple. The company expects $5 billion in revenue this year while spending about $20 billion. To cover the gap, CoreWeave has taken on $14 billion in debt, much of it from private-equity firms at high interest rates.

Additionally, CoreWeave faces $34 billion in scheduled lease payments between now and 2028. A significant portion of its revenue—up to 70%—comes from a single customer, Microsoft. Other major customers include Nvidia and OpenAI, both of which are also investors in CoreWeave.

Interconnected Business Relationships

The intricate web of relationships between CoreWeave, its customers, and its investors raises eyebrows. Nvidia, for instance, is CoreWeave's exclusive chip supplier and a major investor. This means CoreWeave is using Nvidia's money to buy Nvidia's chips and then renting them back to Nvidia. OpenAI, another major customer, is also an investor and has close financial ties with both Nvidia and Microsoft.

Industry Trends and Concerns

This complex financial landscape is not unique to CoreWeave. Tech giants like Amazon, Google, Meta, Microsoft, and Oracle are making massive investments in data centers, tying their fortunes through circular financing deals and borrowing large sums from lightly regulated lenders. These companies argue that these deals will position them to capture the vast profits expected from the AI revolution.

However, some experts draw parallels to the 2008 financial crisis, where similar overlapping arrangements led to economic turmoil. If the AI revolution fails to meet expectations, the economic consequences could be severe. The extreme financialization of the AI sector reflects the high costs of the infrastructure required to train and run AI systems, which even the largest companies cannot afford without creative financing measures.

References

• Something Ominous Is Happening in the AI Economy - The Atlantic