JPMorgan: CoreWeave's business model is solid; market concerns over debt and cash burn may be excessive.

BlockBeats news, October 20 - According to Bloomberg, JPMorgan analysts said investors' concerns about CoreWeave's debt growth and rapid cash burn may be overdone, with the company's financing needs mainly driven by rapid expansion rather than poor economics of individual projects. Previously, rising bond yields intensified market concerns about its debt-fueled expansion, and the company's stock price fell about 20% last week.

JPMorgan believes that CoreWeave's business model remains sound, with strong demand for computing power, and long-term "take-or-pay" contracts can lock in customers before new capacity is commissioned. According to its estimates, a typical 5-year contract has an unlevered internal rate of return of about 15%, higher than the company's estimated weighted average cost of capital of 9% to 11%; after the contract expires, re-contracting GPUs can also bring additional revenue.

However, aggressive expansion is expected to continue to put pressure on short-term cash flow. The bank estimates that each 1 GW of fully commissioned capacity can generate $10 billion to $15 billion in annual revenue, but adding 1 GW of new capacity requires more than $35 billion in upfront capital expenditure. The company may not be able to rely on cash generated from existing operations to provide sufficient funding for expansion until 2030.