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It’s barely three months since CoreWeave went public, and the US data centre operator is already on the acquisition trail. Helped by a share price that has already quadrupled, the company on Monday said it was buying Core Scientific, another data centre company, in an all-stock deal for $9bn. The deal tells two different stories about the artificial intelligence boom: one of expansion and one of caution.
CoreWeave’s data centres are an important brick in the AI wall: clients such as OpenAI and Microsoft rent the company’s servers to hone their large language models. Absorbing Core Scientific is, on the face of it, part of a land grab. CoreWeave will increase its potential data centre capacity by more than 2 gigawatts. For context, that’s approximately half the size of OpenAI’s enormous Stargate supercomputer project.
But if data centres are a hot property, there’s a hotter one: cash. And CoreWeave is also engaging in some balance sheet gymnastics. It already had an agreement to lease data centres from Core Scientific, which would have cost it $10bn over 12 years. The contracts were “take or pay”, meaning CoreWeave would have had to pay even if its customers didn’t need the extra capacity. Buying the company makes that risk go away.
Take a step back, and CoreWeave is doing something smart. It has persuaded Core Scientific shareholders to trade tomorrow’s cash flows for a slug of shares today. That makes perfect sense: CoreWeave is currently spending billions of dollars more than it makes from its operations, while funding the difference through expensive debt. Logical, then, to transmute some of that to cheap equity, which comes with no interest payments.
Equity isn’t really cheap, of course. CoreWeave’s borrowings cost it 10 per cent or more a year, but its equity holders probably expect a return much higher than that — say, 15 per cent. For now, that’s easily delivered in share price gains, thanks to an exuberant market. CoreWeave currently trades at 12 times forecast sales, according to LSEG, a premium to its mighty customer Microsoft.
One act of financial engineering will surely lead to more. CoreWeave plans to borrow against the merged company’s assets and operations in new and clever ways, which it says could cut its interest rate by a few percentage points. In the meantime, it will also get the cash on Core Scientific’s balance sheet swelling its own coffers by roughly 50 per cent based on numbers from the end of March.
It’s hard not to see this deal, and CoreWeave’s move to preserve its cash flexibility, as an insurance policy of sorts. And why not, if a booming stock market allows? Naturally, neither side is saying that the data centre race could run out of momentum, or giving any suggestion that CoreWeave’s own customers might be getting cold feet. But if that subsequently proves to be the case, this deal will look highly prescient.
john.foley@ft.com
