Let’s start with some very recent history. CoreWeave is a data center company that pivoted in 2022 from crypto. (In 2021, CoreWeave made its money by… mining Ethereum.) Essentially, CoreWeave is a landlord for compute: companies pay for the use of its server racks for AI projects.
CoreWeave chief executive officer Michael Intrator, a former hedge fund manager,
“They have to continue to borrow to pay interest on the last loan.”
- CoreWeave sits at the center of the AI bubble;
- it used to be a crypto company and also gets its (electric) power from a Bitcoin mining company that makes no money and has CoreWeave as its only customer
- it's positioned itself as a rentier;
- its interest payments on previous loans exceed its revenue by a significant amount, so it's paying off loans with more loans and has already defaulted once;
- it has essentially two customers, Microsoft and NVIDIA;
- it has a loan from one of the actors implicated in the 2008 financial crash (Magnetar)
- it's run by a finance guy, not a tech person
- yet it's in the position of someone who takes out a new credit card to pay the interest on the previous credit card
Yeah. Looks like crypto, and crypto's Ponzi scheme way of thinking, has slimed its way into the "real" economy after all.
Oh and welcome back, global financial crash. We missed you. And eyyy, how you doing Enron long time no see:
CoreWeave isn’t alone in its complex finances. Meta took on debt, using a SPV, for its own data centers. Unlike CoreWeave’s SPVs, the Meta SPV stays off its balance sheet. Elon Musk’s xAI is reportedly pursuing its own SPV deal.
Peter Thiel pulling his investments out of NVIDIA makes far more sense after reading this. Looks wobbly.
It is perhaps time to discuss the enormous stock sales from CoreWeave’s management team. Before the company even went public, its founders sold almost half a billion dollars in shares. Then, insiders sold over $1 billion more immediately after the IPO lockup ended.
“It’s noteworthy that people who have a good view on that business are cashing out,” says Leevi Saari, a fellow at the AI Now Institute.
It makes a certain kind of cynical sense to view CoreWeave itself as, effectively, a special purpose vehicle for Nvidia.