Startups that rent out powerful AI chips are taking a page from CoreWeave’s (CRWV) playbook by borrowing large amounts of money to grow quickly, according to The Information. For example, London-based Fluidstack has secured approval to borrow over $10 billion using its supply of Nvidia (NVDA) chips as collateral. This is part of a growing trend where private lenders, who are flush with cash, are eager to finance companies that offer computing power for AI. These lenders are betting that demand will stay strong and that customer contracts will provide steady revenue. But this borrowing strategy comes with risks.
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While it helps meet the growing need for AI infrastructure, it also piles billions of dollars in debt onto young companies that aren’t profitable yet. As a result, if chip prices drop faster than expected or customer growth slows, these companies may struggle to repay their loans, which often come with double-digit interest rates. Nevertheless, CoreWeave’s success has helped make this kind of debt financing more acceptable in the tech world. And Fluidstack is using the funds to grow quickly as it expects to increase revenue from $65 million last year to over $400 million this year.
However, not every startup is taking the same approach. Some, like Nebius (NBIS) and Vultr, are using lower-interest loans backed by cash flow rather than hardware. Others, such as TensorWave, are trying to borrow against AMD (AMD) chips, though these are less commonly used than Nvidia’s. And despite pioneering these types of loans, CoreWeave itself is looking for cheaper financing. Indeed, it recently announced that it will buy data center operator Core Scientific (CORZ) in order to tap into lower-cost infrastructure loans. For investors, this rapid expansion could mean big growth, but it also adds more financial risk if the market shifts or newer chips make today’s hardware less valuable.
Is CRWV a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on CRWV stock based on six Buys, 11 Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average CRWV price target of $78.53 per share implies almost 50% downside risk.
