Investing.com -- Fitch Ratings has issued a first-time Long-Term Issuer Default Rating (IDR) of ’BB-’ to CoreWeave, Inc. on May 19, 2025. The rating agency also assigned the same ’BB-’ rating to CoreWeave’s proposed new $1.5 billion senior unsecured notes, which have a Recovery Rating of ’RR4’. The Rating Outlook for the company is positive.
The ’BB-’ rating and Positive Outlook are a reflection of CoreWeave’s strong business model, which is characterized by stable, recurring revenue streams. The company’s risk of execution in the near to medium term is low, supported by unit-level economics that ensure capital expenditure only after contracts are signed. Despite high upfront capital expenditure, CoreWeave’s cash flow profile is strong, supporting its financial stability.
While the company’s leverage is high, it is backed by strong EBITDA growth potential, which is clearly visible over the next few years. This shows a clear path to deleveraging. CoreWeave’s refinancing risk is manageable, supported by satisfactory liquidity, which ensures the company can meet its short- to medium-term obligations.
As of December 2024, CoreWeave’s gross EBITDA leverage, excluding leases, was 6.6x, with lease-adjusted gross leverage at 6.7x. In FY2025, Fitch expects the company’s gross EBITDA leverage to approach 5x, with lease-adjusted leverage around 5.7x. In the following years, gross EBITDA leverage could range between 2.0x-2.5x and lease-adjusted leverage between 3.0-3.5x.
In 2024, Microsoft (NASDAQ:MSFT) accounted for 62% of CoreWeave’s revenue, with the top two customers combined accounting for 77%. Although the addition of a new OpenAI contract introduces some diversification, revenue remains highly concentrated. This underscores potential risks associated with heavy reliance on a limited number of key clients. Expanding its customer base could help mitigate these risks over time.
As of March 31, 2025, CoreWeave had $14.7 billion in remaining performance obligations (RPO). Its $25.9 billion total pro forma revenue backlog includes $11.2 billion from a new committed contract not yet recognized under GAAP. Committed contracts account for over 95% of revenue, ensuring payment regardless of utilization.
However, while management expects 96% of RPO to be recognized over the next four years, clarity diminishes thereafter. CoreWeave will be reliant on contract renewals or replacements to maintain revenue growth. The company’s relatively short operating history and the rapid evolution of AI technology contribute to the uncertainty of CoreWeave’s sustainability over the longer term.
CoreWeave faces a potential risk due to the mismatch between the terms of its leases with data center suppliers and the contracts with its customers. While its leases typically span 3-15 years, its customer contracts generally have shorter durations of 3-5 years. This disparity creates challenges in aligning long-term obligations with shorter-term revenue streams.
CoreWeave’s first-mover advantage, partnership with Nvidia (NASDAQ:NVDA), and top-tier performance metrics bolster its position against both hyperscalers and smaller AI-focused cloud provider competitors. Its AI specialization also helps it compete specifically against hyperscaler competitors.
CoreWeave operates within the digital infrastructure sector. Its peers include Equinix (NASDAQ:EQIX), Inc. (BBB+/Stable), Digital Realty (NYSE:DLR) Trust, Inc. (BBB/Stable), Iridium Communications (NASDAQ:IRDM), Inc. (BB/Stable) and Viasat, Inc. (B/Stable).
Fitch expects CoreWeave’s total revenue to grow to approximately $5.5 billion in FY2025 and around $9.4 billion in FY2026, with growth rates in the high single-digits thereafter. EBITDA margin is expected to expand to over 70% by FY2026, driven by operating leverage.
Factors that could lead to a downgrade include EBITDA leverage (ex-leases) sustained above 4.0x or lease-adjusted leverage sustained above 5.0x; failure to achieve positive FCF over the medium-to-long-term, resulting in ongoing reliance on external financing and potential liquidity issues; continued reliance on a limited number of revenue sources or major contracts.
Factors that could lead to an upgrade include EBITDA leverage (ex-leases) sustained below 3.0x or lease-adjusted leverage sustained below 4.0x; expansion into new markets or services that diversify revenue streams and reduce dependence on a few large customers.
Pro forma for the new notes issuance, Fitch expects CoreWeave to have sufficient liquidity, supported by $2.3 billion in estimated cash and equivalents, and full availability under its $1.5 billion revolving credit facility.
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