CoreWeave’s Stock Market Debut: A Rocky Start for the AI Sector

CoreWeave began trading on the stock market today, marking a somewhat troubling beginning for the AI industry. Initially aiming to sell shares priced between €43 to €51, the company made its debut at €36, despite receiving significant backing from Nvidia, which had placed a large €230 million order at €37 per share. However, a closer look reveals that CoreWeave’s business fundamentals raise several concerns, illuminating the lukewarm interest from investors.

CoreWeave’s Journey: From Cryptocurrency Mining to AI Pioneering

Founded in 2017, CoreWeave initially purchased GPUs to cater to the booming cryptocurrency mining industry. As AI began to gain traction, the company pivoted, positioning itself as a provider of critical hardware to an emerging market that desperately needs GPUs.

The Timing Couldn’t Be Worse: Impact of Corporate Spending Cuts

Unfortunately, CoreWeave’s timing appears less than ideal. The company is going public just as its primary client, Microsoft, is scaling back on AI infrastructure investments, relinquishing leases on data centers worldwide and prompting OpenAI to seek alternative partnerships. Meanwhile, Meta’s CEO Mark Zuckerberg has voiced concerns about potential overspending on AI infrastructure, although he believes future demand will eventually catch up.

After the release of ChatGPT in 2023, there was a sudden surge in demand for chips; however, that demand has begun to taper off, posing a threat to CoreWeave’s business model. According to the Wall Street Journal:

The supply shortage has subsided, making it relatively easy for companies to procure necessary chips. The cost of renting a GPU for an hour, which was about €5.10 in mid-2023, has dropped to €1.40, according to Evan Conrad, CEO of San Francisco Compute, a GPU rental marketplace.

Revenue Risks: Microsoft’s Influence on CoreWeave

To put the risk into perspective, Microsoft represented an astonishing 62% of CoreWeave’s revenue in 2024. The tech giant has opted against a significant €11 billion further investment in infrastructure, which has now fallen to OpenAI instead.

Furthermore, while Nvidia has acted as a crucial supporter of CoreWeave, the flow of investment seems to circle back as the funds are used to purchase Nvidia GPUs, accounting for as much as 6-7% of Nvidia’s revenue. Being reliant on just two firms, Microsoft and Nvidia—especially with Microsoft scaling back on AI—does not leave CoreWeave in a robust position.

The Heavy Burden of Debt on CoreWeave

CoreWeave is also grappling with a significant debt load. Although the company reported €1.8 billion in revenue in 2024, it incurred a staggering loss of €5.5 billion last year and €1 billion the year before due to the substantial expenses of expanding its AI infrastructure. The company’s debt, nearing €7.5 billion, has raised eyebrows, especially since it has utilized the GPUs as collateral, a situation that becomes precarious as GPU prices decline and newer, more efficient AI models require fewer resources. This public offering appears to be driven by a dire need to alleviate its debt situation.

Potential Ripple Effects on the AI IPO Landscape

If CoreWeave continues to perform below expectations in the coming days, it could create headwinds for other AI firms aspiring to go public. With few tech companies having done so recently, investor demands for returns are escalating. Historically, tech company stocks have underperformed initially only to rebound later; hence, this may not mean the end for CoreWeave. Factors such as interest rates and current trade policies have also affected the broader stock market. Companies with financial struggles are less appealing, especially when investors can opt for safer alternatives.

CoreWeave: The Sentiment Barometer for GPU Market Stress

CoreWeave is poised to serve as an early indicator of current market pressures concerning GPUs. Nvidia’s CEO Jensen Huang and others in the industry argue that the demand for new “thinking” models will require abundant resources, projecting sustained growth in GPU demand even as models become more efficient. However, it should be noted that these are ‘picks and shovels’ businesses; their claims often align with self-interest. OpenAI’s Sam Altman noted on X that demand for ChatGPT’s new image generation feature was “melting” GPUs. Whether this demand is sustainable beyond mere novelty remains to be seen.

The Future of CoreWeave: Compelling Questions Ahead

CoreWeave finds itself in a precarious situation. How will chip prices react as industry giants develop in-house alternatives to Nvidia? Why would CoreWeave maintain a valuation of €29 billion on its first trading day? Additionally, what if the anticipated AGI boom fails to materialize? Propped up by inflated excitement over the past two years, CoreWeave has positioned itself as a provider of pivotal tools before any significant AI company has validated these products as reliable sources of profit.

“None of these companies are making profits from generative AI, and aside from OpenAI, there’s hardly any demand for these services,” remarks Ed Zitron, a public relations expert and host of Better Offline. “If true demand existed, Microsoft wouldn’t have stepped back from acquiring an additional 2GW of computational power.”

Even if generative AI ultimately transforms the landscape, the real value is likely to reside at the application layer. Foundational language models and hardware increasingly risk commoditization, while companies identifying viable use cases and charging for applications will emerge as market leaders.

CoreWeave’s Founders: Cashing In Before the IPO

Regardless of the outcome, the three founders of CoreWeave stand to gain significantly. They liquidated €470 million of their holdings between 2023 and 2024.

Frequently Asked Questions

What does CoreWeave do?

CoreWeave supplies GPUs primarily for AI and cryptocurrency applications, making it a key player in the hardware sector for emerging technologies.

Who are CoreWeave’s major clients?

CoreWeave’s largest client is Microsoft, which has accounted for a significant portion of their revenue.

Why did CoreWeave’s stock debut below expectations?

The company faced multiple challenges, including reduced spending from its largest customer and an oversupplied market that decreased demand for GPUs.

What impact does CoreWeave’s IPO have on other AI companies?

CoreWeave’s performance may influence investor confidence in other AI firms looking to go public, especially in a market that is increasingly wary of risky investments.

What are the risks associated with investing in CoreWeave?

Investors should consider CoreWeave’s heavy debt load, reliance on few major clients, and potential market saturation in the GPU sector before investing.