CoreWeave reported earnings today. They beat on revenue. The stock tanked 11%. If you're wondering why, let me explain the business model that nobody wants to talk about.
CoreWeave is a GPU rental company. They buy Nvidia chips and rent them out to AI companies. Simple enough, right? Except the economics are completely broken, and Nvidia is the one keeping the whole thing afloat.
Here are the numbers that should terrify you:
$5 billion in revenue. Impressive. 894% debt-to-equity ratio. Less impressive. Negative $30 billion in equity. Wait, what? This company is technically insolvent on a balance sheet basis.
But it gets better. Or worse, depending on your perspective.
GPU rental rates have collapsed. H100 chips were renting for $8/hour last year. Now they're $1.50-3.00. Utilization is running 60-70% when the loan covenants assume 80%+. And the GPUs themselves? They die in 1-3 years, but CoreWeave is depreciating them over 5-6 years.
Translation: The revenue is overstated, the costs are understated, and the collateral backing all that debt is depreciating faster than the accounting reflects.
Now here's the part that should make every Nvidia investor nervous:
Nvidia has approximately $110 billion invested across GPU rental companies like CoreWeave, and AI startups like OpenAI and xAI. OpenAI's CFO literally said out loud that most of the money they raise goes back to Nvidia to buy chips.
Let that sink in. Nvidia gives money to CoreWeave. CoreWeave buys Nvidia chips. Nvidia books revenue. The market gives Nvidia a 50x P/E ratio. Nvidia raises more money. Rinse, repeat.
This is called vendor financing, and it's not new. Lucent Technologies did the exact same thing in the 1990s. They lent money to telecom companies to buy Lucent equipment. It worked great until the telecom companies couldn't service their debt, defaulted, and dumped equipment on the secondary market. Lucent's stock went from $80 to $0.55 in 18 months.
Nvidia's exposure is seven times larger than Lucent's was, adjusted for inflation.
If you consolidated all these GPU rental companies back onto Nvidia's balance sheet - which is economically where they belong - that 56% gross margin semiconductor company starts looking like an overleveraged equipment leasing business with collapsing rental rates.
And here's the trap: Nvidia can't stop. If they pull funding, the neoclouds fail, liquidate GPUs at fire sale prices, and the supply shock kills Nvidia's own demand. They're trapped propping up their own customers.
What does this mean for investors?
If you're holding Nvidia thinking it's a pure semiconductor play, you're wrong. It's a lender to the AI industry, and that loan book is deteriorating fast.
CoreWeave is the first domino. Watch what happens when the next neocloud reports earnings. If the pattern repeats - revenue beat, stock tanks - it means the market is finally waking up to the circular financing problem.
This doesn't mean Nvidia goes to zero. But it does mean the valuation multiple needs to compress. A lot. You don't pay 50x earnings for a company with embedded credit risk.
The question is whether investors figure this out gradually, or all at once.
