AI cloud company CoreWeave (CRWV) fell 15.45% in today's trading as investors grew concerned about its enormous debt load. The selloff came after the company's bonds fell to prices that are usually associated with financial distress. However, CEO Mike Intrator defended the business in an internal email by arguing that the market was acting "irrationally," according to Bloomberg. He pointed to CoreWeave's large backlog of customer contracts as evidence that the company can meet its debt obligations.

CoreWeave provides computing power to AI companies through data centers equipped with powerful chips from Nvidia (NVDA). The problem is that building these facilities requires billions of dollars before customers begin paying for their use. As a result, CoreWeave relies heavily on borrowed money to fund its growth, which has become a concern for investors.

For example, CoreWeave issued bonds in June that paid 9.625% annual interest. Those same bonds now offer yields approaching 15% because their market prices have fallen.

Although this doesn't automatically increase the interest that CoreWeave pays on its existing bonds, it does suggest that raising new debt could become much more expensive.

CoreWeave's Large Backlog Hasn't Eliminated Financial Concerns

Despite the selloff, CoreWeave's business is growing. Second-quarter revenue more than doubled to $2.58 billion, while its backlog of contracted future revenue reached approximately $104 billion. The company also secured more than $25 billion in additional customer commitments shortly after the quarter ended. Intrator believes that these contracts provide enough future revenue to support the company's borrowing. However, that money will arrive over several years, and CoreWeave must first provide the computing services that customers have agreed to purchase.

Meanwhile, the company's interest expenses have already increased substantially. Second-quarter net interest expense rose from $267 million to $640 million, which contributed to a net loss of $626 million. CoreWeave also expects to spend between $35 billion and $39 billion on infrastructure in 2026.

Another problem is that investors have become more cautious about financing AI data center companies. For example, Nvidia-backed Firmus recently canceled a planned $5.5 billion stock offering after investors questioned its proposed $30 billion valuation.

Data center operator AirTrunk has also reportedly postponed a planned $1.5 billion public offering until next year. Intrator believes that these setbacks at competing companies have contributed to CoreWeave's selloff, and told employees that he plans to address the concerns during the company's next earnings call.

Is CRWV Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on CRWV stock based on 20 Buys, five Holds, and two Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average CRWV price target of $143.96 per share implies 118.3% upside potential. (See CRWV Stock Forecast).