CoreWeave (CRWV) Implements 6-Year GPU Depreciation Strategy, In Contrast to Nebius’s 4-Year Approach

CoreWeave (CRWV) Implements 6-Year GPU Depreciation Strategy, In Contrast to Nebius’s 4-Year Approach

Please note that this content is not financial advice. The author does not hold any positions in the stocks discussed herein.

CoreWeave’s Strategic Move

CoreWeave (CRWV), a prominent player in the cloud-based GPU-as-a-Service market, has made headlines with its recent acquisition of Core Scientific, a cryptocurrency mining firm. Conducted as an all-stock transaction, this strategic move aims to bolster CoreWeave’s vertical integration within the industry. However, it is essential to examine the potential implications of CoreWeave’s depreciation policy, which could raise concerns that overshadow this otherwise optimistic narrative.

Understanding CoreWeave’s Business Model

For those unfamiliar, CoreWeave specializes in renting NVIDIA GPUs through a cloud infrastructure meticulously optimized for artificial intelligence workloads. Their strategic alliance with NVIDIA enables them to provide access to the latest GPU technology at scale, positioning them advantageously in a competitive market.

CoreWeave employs a take-or-pay model, ensuring that customers generate a stable cash flow, regardless of actual compute resource utilization. Furthermore, clients are required to make substantial upfront payments, which partly finance the necessary infrastructure to meet their contractual obligations.

Depreciation Policies: CoreWeave vs. Nebius

The core issue lies in CoreWeave’s current policy of depreciating its GPUs over a six-year timeframe, established in 2023. In comparison, Nebius, which shares a similar operating model, including CoreWeave’s take-or-pay structure, chooses to depreciate its GPUs over just four years. This discrepancy in depreciation methods significantly influences CoreWeave’s financials, artificially lowering its operational expenses while simultaneously inflating its operating income.

Additionally, CoreWeave leverages its substantial inventory of NVIDIA GPUs as collateral to secure debt financing. The extended depreciation period contributes to a higher book value for these GPUs, enhancing the company’s leverage with creditors.

The Client Relationship

Importantly, approximately 96% of CoreWeave’s revenue is derived from committed contracts, which typically span an average of four years. Under this framework, the burden of interest and depreciation costs predominantly falls upon CoreWeave’s take-or-pay customers. When these contracts conclude, CoreWeave has the flexibility to reallocate the GPUs into lucrative Software-as-a-Service (SaaS) opportunities, effectively transforming depreciated assets into cash-generating resources.

However, this raises a valid inquiry: If the depreciation burden is effectively being shouldered by customers, why not adopt a more sensible four-year depreciation schedule akin to Nebius?

CoreWeave’s Acquisition of Core Scientific

In conjunction with its financial strategies, CoreWeave has recently secured an agreement to acquire Core Scientific for approximately $9 billion. This transaction values the 441 million fully diluted shares of Core Scientific at about $20.40 each, ensuring existing shareholders receive 0.1235 CoreWeave shares in exchange.

The acquisition is expected to eliminate $10 billion in leasing costs over the next dozen years. Notably, the annual savings for CoreWeave is projected to reach around $500 million through 2027.

Recently, CoreWeave has been achieving remarkable milestones, nearing a total contracted power capacity of nearly 2GW. The integration of Core Scientific adds approximately 840MW of high-performance computing (HPC) contracts and an additional 500MW dedicated to crypto mining, leaving roughly 1GW available for future expansion—a point highlighted by Macquarie analyst Paul Golding:

“The deal expands CoreWeave’s footprint, providing approximately 1.3 GW of gross power across Core Scientific’s US data center network, consisting of ~840 existing gross MW for Core Scientific’s HPC contracts and ~500 gross MW of crypto mining-allocated power capacity, plus over 1 GW of potential gross power available for expansion.”

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