CITIC Securities: Market Overestimation of CoreWeave Concerns, New Cloud Providers' Short-Term Funding Gap 'Still Manageable'

The rise in U.S. Treasury yields, coupled with CoreWeave's CDS briefly exceeding 1000 basis points, has led to heightened market concerns regarding the debt sustainability of Neocloud.

However, CITIC Securities' latest report on October 19, titled "How to View Neocloud's Debt Issues," argues that this panic misjudges the timeline: the short-term financing gap for new cloud providers can still be covered by existing channels, with the real stress test not expected until 2028—when the ability of AI demand to continue converting into rental income will determine the quality of this round of high-leverage computing power expansion.

The report estimates that capital expenditures related to new cloud providers will approach $500 billion by 2027, corresponding to an annual financing demand of about $310 billion. This scale far exceeds the pressure that can be captured by merely looking at the balance sheets of publicly listed companies, but CITIC Securities believes that public market financing, GPU collateral financing backed by customer contracts, and customer prepayments are sufficient to cover this gap in the short term.

Signs of easing financing costs have emerged. CoreWeave's latest loan (DDTL 4.0), secured by investment-grade customer contracts, has seen its spread drop to SOFR + 2.25%, serving as evidence that short-term financing channels still have the capacity to absorb this gap.

$830 billion Off-Balance Sheet Leases Determine the Real Investment Intensity of New Clouds

Cloud service providers (CSPs) transfer computing power demand to new cloud providers (like Neocloud) through long-term leases, requiring new clouds to complete data center construction and GPU procurement before the lease begins. The scale of off-balance sheet leases directly determines the investment intensity of new clouds. As of the end of Q2 2026, the four major CSPs (Amazon, Google, Microsoft, Meta) had uncommitted lease commitments reaching $830.5 billion, a year-on-year increase of 249%.

Based on this lease scale, CITIC Securities estimates that total capital expenditures for new clouds will approach $500 billion by 2027. This figure is significantly higher than the consensus expectation of around $300 billion for the top five new clouds, with the difference primarily arising from expansion targets like xAI and investments from unlisted new cloud providers.

Financing Gaps from Mismatched Terms Spread Across the Industry Chain

The business model of new clouds inherently involves term mismatches: upfront investments rely on debt financing, with rental income only gradually recouped after the lease begins. Based on approximately $830 billion in leases, and calculating with a 2.5-year cash recovery cycle, a 4-year delivery cycle, and a 60% leverage ratio, CITIC Securities estimates an annual financing demand of about $310 billion.

The key point is that this debt does not solely fall on the balance sheets of publicly listed companies but is dispersed across various segments, including new cloud providers, data center developers, and private credit. Focusing only on the debt of publicly listed companies would systematically underestimate the overall funding pressure across the industry chain.

Replacing Own Credit with Customer Credit, Short-Term Financing Remains Manageable

CITIC Securities believes that the supply of short-term financing has the capacity to absorb the demand. The core logic lies in new clouds leveraging small equity to drive large investments—using customer credit to replace their own: GPU collateral financing backed by investment-grade long-term contracts shifts the lender's risk exposure from GPU residual value to the contract cash flow itself, as evidenced by the drop in CoreWeave's DDTL 4.0 spread to SOFR + 2.25%.

Customer prepayments effectively serve as interest-free financing. According to disclosures from Nebius's shareholders, about 70% of its new contracts signed in Q2 included prepayment terms; in the context of continued tight supply of computing power, this proportion is likely to remain high in the short term.

2028 as the Turning Point: Computing Power Prices Are More Important Than Interest Rates

CITIC Securities judges that the core variable for new clouds' debt repayment capacity is not interest rates, but the rental prices of computing power. According to data from Silicon Data, the rental price index for H100 has risen by 31% year-on-year; CITIC Securities estimates that for every 10% increase in computing power prices, CoreWeave and Nebius's net profits in 2027 will increase by approximately 62% and 69%, respectively. However, even in this price environment, CoreWeave's free cash flow remains negative—price increases improve profit elasticity but do not fill the absolute funding gap.

This means that from the second half of 2027 onwards, delivery progress, model capabilities, and commercialization advancements will become key tracking indicators. Power constraints will support rental income while also delaying revenue recognition; meanwhile, interest rates are unlikely to materially decline before 2027, further compressing the space for improving financing costs.

CITIC Securities predicts that 2028 may usher in a turning point for cash flow and financing costs, provided that AI demand continues to be realized during this window; if commercialization falls short of expectations, the term mismatch issues currently masked by short-term financing channels will be concentrated and exposed in 2028. In the medium to short term, given the continued tight supply of computing power and resilient prices, the overly extreme pricing expectations in the new cloud sector are likely to be corrected, but the sustainability of this correction will ultimately depend on the demand quality gradually verified starting in the second half of 2027.

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