Assessing the Risks of Circular Financing for CoreWeave and Nebius Group Investors

Key Points

• CoreWeave and Nebius Group each benefit from Nvidia’s financial backing.

• This backing has allowed them to raise significant funds via equity sales and debt to expand their AI infrastructure.

• Such investments could become vulnerable should the AI market slow.

Investors are increasingly uneasy about the growing discussion of circular financing in the AI infrastructure expansion, a topic that Nvidia itself raised during its latest earnings call.

Nvidia has been channeling substantial capital from its balance sheet into AI labs and cloud‑computing providers—commonly referred to as neoclouds—which then recycle those funds to purchase Nvidia chips for their own data‑center build‑outs.

Two firms engaged in these circular financing deals are CoreWeave (NASDAQ: CRWV) and Nebius Group (NASDAQ: NBIS), with their shares having fallen 41% and 30% respectively from their peak levels.

Given the decline in their share prices, should investors be concerned about the fragility of these neoclouds’ financing amid the AI boom? The following figures provide insight.

CoreWeave’s Nvidia backstop

CoreWeave began as a cryptocurrency mining operation before shifting to an AI‑focused cloud service that leveraged its idle Nvidia GPUs—a move that proved highly lucrative.

By expanding its network of Nvidia‑powered data centers, CoreWeave grew its revenue from virtually zero to more than $2.5 billion in the most recent quarter, translating to an annual run rate of roughly $10 billion. To fund this rapid expansion, the company secured capital through various channels, resulting in a current debt load of about $35 billion.

Nvidia supports CoreWeave in two ways. First, it has taken a direct equity stake in the neocloud, which then uses those proceeds to purchase Nvidia processors for its expanding data‑center footprint. Second, Nvidia offers a liquidity backstop: should CoreWeave fail to lease all of its newly built cloud capacity, Nvidia will purchase the unused capacity itself, a commitment that runs through April 13, 2032.

Maintaining its reputation as a dependable cloud provider will be essential for CoreWeave, especially as its projected capital expenditures for 2026 are expected to range from $35 billion to $39 billion. The firm is investing far ahead of its present revenue, relying on anticipated future demand for AI cloud services.

Image source: Getty Images.

Nebius’s sneaky growth

Although Nebius Group is smaller than CoreWeave, its growth rate is far higher. The company originated as a spin‑off from Russia’s Yandex, an asset that Western investors could not hold due to sanctions, and has since relocated to the Netherlands where it is constructing a large‑scale neocloud platform.

Revenue has surged, climbing 454% year‑on‑year to reach $582 million in the latest quarter. Nebius has pursued circular financing arrangements akin to those of CoreWeave while also securing substantial commitments from hyperscalers such as Microsoft and Meta Platforms. Momentum remains strong, and the firm intends to keep expanding its data‑center capacity to meet existing customer demand.

Nevertheless, Nebius faces a similar challenge to CoreWeave: it must invest heavily in capacity up front before it can generate revenue from those assets. In the first six months of the year the company has already spent $8 billion on capital expenditures, and it forecasts total spending exceeding $20 billion for 2026. To fund this outlay, Nebius recently closed a $5.75 billion offering of convertible notes.

A tale as old as time

While the current surge in AI spending appears advantageous, these neoclouds may be positioning themselves for future letdowns. Circular financing—also referred to as vendor financing—has been a recurrent tactic during various asset booms. During the dot‑com era, for instance, telecom equipment makers took on considerable debt anticipating endless exponential growth in fiber‑optic demand.

History showed that those expectations were not met, and a comparable scenario could unfold for neoclouds going forward, even though the outlook for compute demand remains optimistic today. CoreWeave reports $104 billion in revenue commitments as of the close of the last quarter, yet the figure does not reveal how enforceable those pledges are. Should AI demand from businesses and end users weaken, CoreWeave’s customers might withdraw their commitments, potentially leaving the company exposed.

Thanks to Nvidia’s strong balance sheet and its ability to provide liquidity support, these neoclouds could weather a downturn better than the firms that fell during the dot‑com crash. While this does not automatically translate into a buy recommendation for their shares, it does reduce the likelihood of bankruptcy in a adverse market.

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