CoreWeave IPO: Is This AI Infrastructure Startup a Buy?
Is the market for initial public offerings (IPOs) finally thawing after a prolonged chill? The surge in artificial intelligence (AI) development could be the catalyst. Following the 2021 downturn for hypergrowth and special purpose acquisition companies (SPACs), few new technology stocks have gone public. In 2021, over 1,000 companies debuted on the public market. However, that number plummeted to around 200 annually over the last three years. Now, 2025 may herald a resurgence in IPOs.
One highly anticipated offering is from CoreWeave, an AI infrastructure startup with backing from Nvidia, which recently filed its paperwork to go public. With rapid revenue growth, there’s considerable excitement surrounding this potential blockbuster IPO in the AI sector. But should investors jump in and buy shares?
Fast Revenue Growth, Large Deals
CoreWeave aims to challenge existing hyperscaler cloud computing providers such as Amazon Web Services by building data centers and computing clusters specifically designed for AI applications. Initially, the company was a cryptocurrency mining operation, but it pivoted when it realized the value of its Nvidia computer chips for AI software companies.
Demand for AI-focused cloud computing has exploded in recent years, turning Nvidia into one of the world’s most valuable stocks. CoreWeave, in which Nvidia invested, has benefited greatly from this trend.
Revenue for 2024 reached $1.9 billion, a staggering 737% increase year over year. This rapid growth is expected to continue in 2025, with a remaining performance obligations (backlog) of $15.1 billion at the time of the IPO prospectus. The backlog might even grow further. CoreWeave signed an $11.9 billion contract with OpenAI ahead of the IPO, granting OpenAI ownership of $350 million worth of CoreWeave stock.
Growth, without exaggeration, has been phenomenal for CoreWeave in recent years.
Customer Concentration and Cash Burn
While the growth metrics are impressive, CoreWeave faces challenges. There is heavy customer concentration, as Microsoft accounted for 62% of its 2024 revenue. This poses a significant risk, as Microsoft is also a competitor with its Azure cloud service. If/when supply meets demand in the AI sector, Microsoft could bring its data center spending in-house instead of outsourcing it to CoreWeave.
The company’s substantial cash burn is another concern. In 2024, CoreWeave burned $6 billion in free cash flow due to $8.7 billion in capital expenditures, while also accumulating $2.5 billion in short-term debt and $5.5 billion in long-term debt. To achieve profitability, CoreWeave needs to sustain rapid revenue growth, which is not guaranteed.
What Should Investors Do?
Despite the volatility in the Nasdaq index, there is significant buzz surrounding AI stocks and the CoreWeave IPO. Unless market conditions deteriorate significantly, the IPO is likely to be a major event. However, should you buy the stock at IPO? Data suggests that many IPOs underperform the market in the three years following their debut. Smart investors bear in mind that insiders may sell shares after the lockup period ends, potentially decreasing the stock price.
CoreWeave has impressive growth in a high-potential sector. But it is also grappling with substantial cash burn and customer concentration risk with Microsoft, and historically, many new IPOs underperform. Investors should keep CoreWeave on their watchlist, as there may be opportunities to acquire shares at a lower price in the coming years.
