CoreWeave targets ‘unlimited’ insurance money to fund AI build-out

CoreWeave is chasing insurers’ vast pools of capital as the Nvidia-backed AI cloud provider seeks cheaper ways to fund the tens of billions of dollars it is spending on chips and other AI infrastructure.

The push comes as the AI boom increasingly leans on debt deals to build data centres and buy the Nvidia chips needed to power AI models. That has made life insurers — and the trillions of dollars they manage — the biggest prize for borrowers seeking cheaper funding.

Brannin McBee, a co-founder who leads CoreWeave’s financing efforts, said winning investment-grade ratings for more of its chip-backed debt, and eventually the company itself, would allow it to borrow from insurers whose capital “is unlimited. Like, that’s all the money in the world that sits in the insurance tranche.”

CoreWeave leads a pack of upstart cloud providers, known as neoclouds, that have sprung up to run huge clusters of Nvidia chips and rent the computing power to AI labs and Big Tech groups. It has also pioneered debt-heavy financing structures to pay for that hardware, leaving it vulnerable, critics say, to a downturn in AI demand.

Earlier this year, CoreWeave secured an $8.5bn loan backed by chips and a long-term contract with Meta to use them — a deal known in the industry as an offtake. It was the first of its chip-backed loans to be rated investment grade in full.

“Demonstrating that we can execute within that market, that’s massive, that’s so big for us,” McBee said in an interview.

The next step is getting insurers to buy loans backed by lower-rated customers, such as AI labs. “I don’t think that non-investment-grade offtakes from us are ready to go into the insurance tranche yet. I do think it’ll get there,” McBee said, adding that the upcoming stock market listings by the big AI labs would help.

Over the past four years, McBee and his two co-founders, Michael Intrator and Brian Venturo, have turned CoreWeave from a small crypto miner into an AI cloud provider with more than 1.5 gigawatts of active power and plans to grow that to 8GW by the end of 2030.

Paying for the hundreds of thousands of Nvidia AI chips underpinning its platform has also turned CoreWeave into a financing machine. The group has secured more than $35bn this year across chip-backed loans, high-yield bonds, convertible bonds and share sales, bringing its debt and lease obligations to about $52bn at end June.

McBee, a former natural gas and electricity trader, struck the first deal in 2023, a $2.3bn loan led by Blackstone and secured against Nvidia’s graphics processing units and an offtake contract with Microsoft.

It carried an effective interest rate of about 15 per cent, far above typical junk bond yields, but opened a new market for chip-backed debt. The chips sit in subsidiaries, McBee said, and each dollar they earn first pays interest, principal and running costs, with the remaining 20 cents going to the parent. CoreWeave has since signed five more such loans at lower rates, securing about $27bn in total.

McBee likened the approach to how power plants are financed. “You say, here’s an idea, and then you forward-sell contracts associated with that idea, and you use those contracts with that collateral to go finance it,” he said.

“Will we do more [delayed draw term loans]? Absolutely,” McBee said. “I don’t look at that as scary debt at all. I look at that as accelerating debt and great debt.”

Jordan Chalfin, a credit analyst at CreditSights, said CoreWeave had been “very creative” with its financing but noted that with more rivals and hyperscalers exploring similar chip-backed deals, its borrowing costs could rise.

He added that CoreWeave’s unsecured bonds had sold off to yield almost 15 per cent and that investors worried about a mismatch between its long data centre leases and shorter customer contracts. “If there’s an overbuild, why would [customers] renew their contract with CoreWeave?” he said.

McBee said CoreWeave as a whole could also reach investment grade within “a few years” even though analysts forecast negative free cash flow of about $25bn this year, $28bn next year and $18bn in 2028, according to a Visible Alpha consensus.

“If we stop building today, [we’d be] immensely cash-flow positive,” he said. But “we are in a period where you have to be huge. You have to be one of the biggest players.”

All of the borrowing has pushed up interest costs, which more than doubled year on year to $640mn in the second quarter. CoreWeave’s debt stood at about 5.8 times its annualised second-quarter earnings before interest, tax, depreciation and amortisation. S&P assesses its financial risk as “aggressive”.

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Its growth plans mean CoreWeave is constantly looking for new sources of money and ways to cut its borrowing costs.

McBee said CoreWeave was “actively” looking at a $500bn financing programme Nvidia unveiled with institutional partners such as Goldman Sachs in August. Nvidia chief executive Jensen Huang “pulled together a great group of balance sheets”, McBee said, noting that he expected CoreWeave to help shape the programme.

It would expand on a deep relationship between the two companies, with CoreWeave one of the first upstart cloud computing providers Nvidia backed.

McBee said CoreWeave “deeply appreciated” Nvidia’s support, which has included more than $2bn of investment, a $6.3bn agreement to buy its unused computing capacity and anchoring its IPO. Huang’s personal foundation had separately donated $108mn of computing time bought from CoreWeave as of May.

But he rejected claims of circular financing, saying Nvidia had provided only a few billion dollars of the tens of billions CoreWeave had raised.

McBee also dismissed the idea that CoreWeave was merely leasing out Nvidia’s chips, calling the hardware “table stakes” and CoreWeave’s own cloud software the real source of value. It has helped CoreWeave land new customers such as Caterpillar and Capital One.

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CoreWeave’s three co-founders have sold about $2bn of shares this year, according to S&P Capital IQ. McBee said the founders were diversifying their personal wealth, but that most of it was still in CoreWeave shares. “We could go off to a ranch and retire,” he said. “But you’re watching us show up every single day and put our time into this business.”

Demand for AI cloud computing far outstripped supply, McBee said. CoreWeave had sold nearly all its capacity for 2027, he said, and was now signing deals for 2028 and beyond.

Ready-to-use data centre buildings with megawatts of power connected, known as powered shells, were especially scarce, he said. “If you gave me 100 megs of powered shell today, I’d sell it in 18 seconds. Like, literally, I’d type it on Slack and it’d be gone.”