CoreWeave reported growth of 134% YoY for $1.4 billion in revenue yet missed fiscal 2025 revenue guidance due to a timing miss with a major hyperscaler. The revenue will now be recognized in Q1 due to a delay in the powered shell: “As mentioned, the delays in powered-shell delivery associated with the data center provider will have an impact on our fourth quarter results. These delays are temporary, and as Mike noted, the affected customer has agreed to adjust the delivery schedule to preserve their capacity for the full duration and the total value of the original agreement.”
The new fiscal year guidance is for revenue of $5.05 to $5.15 billion compared to previous guidance for revenue of $5.15 to $5.35 billion. The timing miss also caused the company to reduce capex by 40% to $12-$14 billion compared to the previous guidance of $20-$23 billion. This will represent revenue growth of 165.6% compared to previous expectations for growth of 173.4%.
AI investors may want to get comfortable with delays in recognizing revenue due to power constraints. We’ve been preparing for this with ample exposure to AI data center energy in our portfolio.
CoreWeave’s fundamental profile has some puts and takes. The margins are strong yet the cash remains troublesome. For example, CoreWeave is a recent IPO that is already GAAP positive on operating margin at 4% and reported an adjusted EBITDA margin of 61%. However, the company reported negative free cash flow of ($1.6 billion) with $14 billion in debt and $2.5B in cash on the balance sheet. This leaves net debt of $11.5 billion – yet this is mild given what the company plans to spend in capex next year (expect the debt to go up rapidly).
Overall, the buildout that AI requires will need the market to be in high spirits as there is a glass half-full and a glass half-empty exercise to many of these high growth names that are reporting high debt leverage ratios. The backlog of $55B represents nearly double Q2 and is approaching 4X YTD yet the debt is also up 2X YTD. There are no new major red flags in this report; rather CoreWeave is on a trajectory of high growth-high debt for the foreseeable future.
For additional context, you can read our previous coverage on CoreWeave, where we outline the broader opportunity and what makes the AI infrastructure company unique despite having large competitors.our previous coverage on CoreWeave, where we outline the broader opportunity and what makes the AI infrastructure company unique despite having large competitors.
Backlog Soars yet Powered Shells are the Bottleneck
The company stated the backlog grew by $25 billion to $55.6 billion, up from $30.1 billion for growth of 85% QoQ. Although backlog helps to illustrate that we are years away from AI being a demand problem, one has to wonder if backlog and RPO key metrics are really all that useful given power-related bottlenecks are led to a miss in fiscal year guidance.
Overall, key metrics that illustrate supply are preferred – such as CoreWeave stating their active power footprint grew by 120MW sequentially to approximately 590MW with contracted power capacity growing over 600MW to 2.9GW. That represents 25.5% QoQ growth. Management expects to end the year with over 850 megawatts of active power.
According to management: “And as Nitin said, we expect the overwhelming majority of that 2.9 gigawatts of power to be brought into service over the next 12 to 24 months.” That would imply nearly 400% growth over a two-year period from 590MW to 2.9GW, if all else remains equal.
Analysts asked what led to the timing delay with the CEO leaning into the issue by stating they expect to see powered shells leading to more delays in the near future: “So you're going to be hearing this theme repeated again and again as you talk to not just CoreWeave, but you talk across the space. And it is a real challenge at the powered-shell level. It's not a challenge for power, right? There's plenty of power right now, and we believe that there will be ample power for the next couple of years. But really where the challenge is, is the powered shell.”
Note, we listen to many earnings calls and although CoreWeave is connecting dots that the bottleneck can persist beyond simply securing power, the widespread issue is certainly related to the availability of power. However, the sentiment is the same as I believe CoreWeave is communicating that even after a customer secures power, there is still more work to do and potential delays before they can recognize revenue. For example, delays could be regulatory in nature to where states like Texas require extra steps, etc.
There are no major red flags from this delay as management assured investors that the customer agreed to extend the expiration date with CoreWeave maintaining the total value of the original contract.
Financials
Strong Revenue Growth of 134%
CoreWeave’s Q3 revenue grew by 133.7% YoY and 12.5% QoQ to $1.37 billion. The company beat analyst consensus estimates by a solid 6.6%, driven by continued strong demand for the company’s AI cloud infrastructure services.
While the underlying business momentum remains strong, the company reduced its full -year revenue guidance by $150 million at the midpoint due to a timing miss with a major hyperscaler. The revenue will now be recognized in Q1 due to a delay in the powered shell. The new fiscal year guidance is for revenue of $5.05 to $5.15 billion, compared to the previous guidance of $5.15 to $5.35 billion. It would imply that the Q4 revenue of $1.54 billion, representing a YoY growth of 106% and 12.8% QoQ. They were below the analysts' estimates of $1.79 billion.
Management stated in the earnings call, “Now turning to guidance. As mentioned, the delays in powered-shell delivery associated with the data center provider will have an impact on our fourth quarter results. These delays are temporary, and as Mike noted, the affected customer has agreed to adjust the delivery schedule to preserve their capacity for the full duration and the total value of the original agreement.”
Looking ahead, analysts expect 2026 revenue to grow 132% YoY to $12.23 billion, and these estimates will be increased due to the push-out caused by the delay in Q4 revenue recognition to Q1. For 2027, revenue is expected to grow 49.4% YoY to $18.27 billion.
Product innovations included the launch of CoreWeave AI Object Storage. It is a fully managed storage service that eliminates the friction of moving data between regions, clouds, and tiers, with zero egress or transaction fees. Management also highlighted that CoreWeave's AI Object Storage delivers the highest throughput for AI workloads while cutting customers' costs by more than 75%.
Robust Backlog of $55.6 billion
The company’s Q3 backlog grew by 85% sequentially to $55.6 billion. Management stated: “Demand remains robust for not just the Blackwell platform but across our GPU portfolio. In the third quarter, we signed a number of deals for older generations of GPUs, adding new customers and recontracting existing capacity.” Management also highlighted that they reached $50 billion in RPO, faster than any cloud in history.
Broad-based growth is positive as it will help the company reduce customer concentration. Currently, the largest customer accounts for 35% of the revenue backlog, down from 50% in the previous quarter and 85% at the beginning of the year.
In Q3, the company executed large-scale compute contracts with many of the largest customers, including Meta and OpenAI. We have discussed it in our analysis here. The company entered a $14.2 billion multi-year deal with Meta and expanded the OpenAI partnership with a $6.5 billion deal, bringing total commitments to up to $22.4 billion.
In early September, CoreWeave announced that key partner and investor Nvidia had entered a new order worth up to $6.3 billion under the duo’s pre-existing 2023 master services agreement. It also represents a significant expansion of existing relationships and a diversification away from reliance on any single customer. No single data center provider represented more than 20% of the contracted power portfolio.
The company also entered the US federal market, which should further help to diversify its customer base. CoreWeave will provide secure, compliant, high-performance AI cloud services to US government agencies and their key partners, including the Defense Industrial Base. NASA already uses its services to advance scientific exploration at its Jet Propulsion Lab.
Margins
The company is investing heavily in data center and server infrastructure to meet robust AI demand from its customers. The operating expenses are front-loaded, resulting in a short-term impact on margins.
- Q3 gross profits grew by 126% YoY to $995.85 million with a gross profit margin of 73%, down 200 basis points YoY and 100 basis points sequentially.
- Q3 operating margin was 4%, down from 20% in the same period last year and up 200 basis points sequentially. The operating expenses increased 181% YoY to support strong growth. The adjusted operating margin was 16%, compared to 21% in the same period last year. However, it was better than the management guide of 14% primarily due to higher revenue, lower costs due to timing of data center deliveries from third-party partners, and improved fleet efficiencies.
- The company’s adjusted operating margin guide for Q4 is expected to decline to 8%. Management stated: “In Q4, we will be bringing online some of the largest scale deployment in our company's history. This will have a near-term impact on adjusted operating margin due to the timing difference between when data center costs are first incurred and when we start recognizing revenue.”
- Adjusted EBITDA grew by 121% YoY to $838.1 million with an adjusted EBITDA margin of 61% compared to 65% in the same period last year.
EPS
Q3 GAAP EPS was ($0.22) compared to the analysts' estimates of ($0.51). However, the strong beat was due to a one-time noncash tax benefit of $0.25. Excluding the one-time benefit, the company would beat estimates by $0.04.
Looking forward, analysts expect GAAP EPS of ($0.84) in 2026 and to be GAAP profitable in 2027 with an EPS of $1.63.
Cash Flow and Balance Sheet
CoreWeave’s business model is based on aggressive capacity expansion, currently fueled primarily by debt. As a result, cash is rather thin and gets spent quickly, and free cash flow is widely negative.
- Free cash flow was ($1.6 billion) compared to ($573.9 million) in the same period last year and ($2.7 billion) in the previous quarter.
- The revenue timing miss also caused the company to reduce its full-year capex by 40% to $12-$14 billion compared to the previous guidance of $20-$23 billion. Most of the remaining capex that was previously anticipated in Q4 will now be recognized in Q1. Management expects capex in 2026 to more than double from 2025.
- Cash was $2.49 billion, and debt was $14.03 billion compared to cash of $1.7 billion and debt of $11.05 billion in the previous quarter.
Conclusion:
Increasingly, management conversations for AI buildouts are about credit terms – more so than compute, and perhaps equal to the discussions on energy. We do an extensive checklist after each earnings report to remove emotion from our portfolio decisions and the fact is that CoreWeave has a debt ratio that is 5-6X EBITDA – and this will only get steeper.
Compare that to Nvidia at 0.1X (or negligible). There are lower risk ways to participate in AI, yet the positioning CoreWeave offers is second to none. The company is in the “build” phase but will eventually be in the “yield” phase.
In the interim, we expect to approach this name tactically, as performance is likely to hinge more on market temperament than on a fundamental change in the AI hyperscaler’s long-term prospects.
The yield phase is one we intend to participate in. To illustrate the yield CoreWeave could be capable of, consider the company reached $50 billion in RPO – faster than any cloud provider in history. This, along with other execution metrics, suggests the company could be laying the foundation for a long and meaningful runway in AI infrastructure.
I/O Fund Equity Analyst Royston Roche contributed to this analysis.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Recommended Reading: