CoreWeave IPO: A Deep Dive into the AI Cloud Computing Startup
The initial public offering (IPO) market, sluggish since 2021, may be on the cusp of a resurgence, with artificial intelligence (AI) potentially leading the charge. The recent filing by CoreWeave, an AI cloud start-up backed by Nvidia (NVDA -0.75%), for an IPO and stock listing is a key development. This could be the first generative AI stock to enter the public markets, and investors are watching closely.
From Crypto Mining to AI Cloud Provider
CoreWeave’s evolution is a testament to its adaptability. Initially a cryptocurrency mining operation, the company amassed a large quantity of graphics processing units (GPUs) from Nvidia to meet the high computing power demands of crypto mining. However, the business model shifted in late 2022 due to the downturn in cryptocurrency markets. Recognizing the growing potential of generative AI, fueled by the popularity of products like Chat GPT, CoreWeave pivoted from crypto mining to become an AI cloud provider, leveraging its Nvidia GPUs.
In 2023, Nvidia invested $100 million in the company. This strategic backing highlights the importance of the AI cloud market, which requires significant computing power for training, operating, and scaling generative AI tools. Big tech companies are planning to spend hundreds of billions on capital expenditures in anticipation of surging demand.
CoreWeave aims to compete with established cloud hyperscalers such as Amazon Web Services, Microsoft Azure, and Alphabet’s Google Cloud. Its focused strategy has shown promising results. Revenue surged from $15.8 million in 2022 to $1.9 billion in 2024, making CoreWeave one of the fastest-growing businesses globally. It has also achieved profitability, generating $324 million in operating income last year, just a few years after transitioning its product focus.
Weighing the Risks and Opportunities
CoreWeave is seeking to raise billions through its IPO and has applied to list its Class A common stock on the Nasdaq Stock Market under the symbol CRWV. These funds are crucial because scaling a cloud computing business is capital-intensive. In 2024, CoreWeave spent $8.7 billion on capital expenditures, resulting in a negative $6 billion free cash flow. Simultaneously, the company has accumulated $7.9 billion in debt.
In its S-1 filing, a document required by the Securities and Exchange Commission (SEC) before going public, the management team highlights remaining performance obligations totaling $15.1 billion from its current customers, to be fulfilled over the coming years. While this signals promising revenue prospects, it does not guarantee that revenue will materialize.
One key concern is CoreWeave’s reliance on Microsoft, which accounted for 62% of its revenue in 2024. Microsoft operates its own cloud computing services and could reduce spending with CoreWeave if demand growth slows. A broader slowdown in AI spending could also significantly impact the company. Given the substantial capital invested in anticipation of high AI spending, any downturn in the market could quickly become detrimental, increasing the risk involved with investing in the company.
QQQ vs. Nasdaq Composite
Evaluating the Investment
While the first-day performance of CoreWeave stock may be strong, boosted by excitement around the IPO, this does not mean investors should rush to buy. The company is likely to enter the market with a premium valuation, saddled with debt, and burning through billions in free cash flow annually. Additionally, a significant portion of its revenue comes from a single customer, Microsoft, which is also a competitor. This makes it a high-risk investment.
Investors should approach this IPO with caution. IPO stocks have historically underperformed in their first year after going public. It’s wise to keep CoreWeave on a watch list for now and monitor how the company performs.
