By my count, there have been zero initial public offerings related to generative artificial intelligence. That’s compared to 2,888 IPOs during the dot-com era, as quantified in my book “Brain Rush: How to Invest and Compete in the Real World of Generative AI.”
That could change March 28 when shares of AI cloud hosting firm CoreWeave begin trading, according to the Wall Street Journal.
The offering size was cut on March 27 to $1.5 billion—“selling 37.5 million shares below the range at $40 apiece,” Reuters reported. This was below the $2.7 billion some investors initially hoped for, added Reuters.
When you place yourself between a big buyer and a big seller you are at a high risk of getting squeezed by both. With Microsoft as a big customer and Nvidia as its AI chip supplier, that is where CoreWeave sits in the industry.
Therefore, while CoreWeave’s investment bankers will try to engineer a big first-day pop, I think investors may be better off resisting the urge to buy the stock. That’s because CoreWeave is:
- Too dependent on a small number of customers, noted Bloomberg;
- Seeking to rent out an older line of AI chips being surpassed by Nvidia’s more powerful Blackwell line, CNBC reported, and;
- Struggling with losses and a heavy debt burden – including a loan from Blackstone on which the company technically defaulted in 2024, according to the Financial Times.
In addition, questions remain about whether Michael Intrator—who managed hedge funds before taking over CoreWeave in 2017 and lacks public company CEO experience—can deliver expectations-beating financial results and raise guidance each quarter.
While extremely rapid growth in demand for Nvidia chips could keep CoreWeave ahead of those expectations, investors seem to have concluded the AI chip designer’s triple-digit revenue growth is behind it.
I have requested comment from CoreWeave and will update this post if I receive a reply.
CoreWeave’s Business Model And Financial Performance
Livingston, New Jersey-based CoreWeave was started in 2017 to mine crypto and has since evolved into a provider of AI cloud computing services. CoreWeave was an early buyer of Nvidia GPUs for data centers before they became popular for running AI applications, reported Bloomberg.
In 2024, the company’s 2024 revenue grew about 730% to $1.9 billion while its net loss increased 45% to $863 million, noted Bloomberg.
CoreWeave has signed “two sizable deals ahead of its listing”—including a pact to deliver up to $11.9 billion in AI infrastructure to OpenAI in exchange for which the startup will receive $350 million worth of CoreWeave stock, Bloomberg wrote.
The company also had $15.1 billion in “remaining performance obligations” at the end of 2024 and has said a “little over half of that will be recognized as revenue by the end of 2026,” the Journal reported.
CoreWeave is in a fierce competition to buy Nvidia chips. Indeed, much wealthier companies—Microsoft (which accounted for 62% of CoreWeave’s 2024 revenue), Amazon, Meta Platforms, and Alphabet—are increasing capital expenditures by 39% in 2025 to more than $340 billion, the Journal wrote.
Intrator will enjoy significant voting control over CoreWeave. He is expected to hold about 2% of the company’s Class A shares and “almost half the company’s Class B shares after the deal, giving him 37% of the shareholder voting power,” according the IPO prospectus. None of CoreWeave’s founders plan to sell stock in the IPO.
CoreWeave’s Most Significant Investment Risks
Investors must consider whether CoreWeave will be able to manage major risks to its business. The most significant of these include the company’s high dependence on a few customers, a large inventory of an older generation of AI chips for rent, and high cash burn rate and rising debt.
Dependence On Small Number Of Large Customers
A substantial portion of CoreWeave’s revenue comes from a small number of large customers.
A big risk facing the company—and hence investors—is “the loss of, or a significant reduction in, spend from one or a few of our top customers would” which would damage the company’s “business, operating results, financial condition, and future prospects,” noted CoreWeave’s IPO prospectus.
How so? About 77% of CoreWeave’s revenue came from its top two customers in 2024, one of which was Microsoft, which accounted for nearly two-thirds of overall sales, according to the prospectus.
High Inventory Of Older Nvidia AI Chips
A basic truth of the semiconductor industry is chips become obsolete rapidly. This is certainly true of the AI chip segment—in which Nvidia keeps cannibalizing its biggest selling by developing new ones that are faster and more powerful, I wrote in “Brain Rush.”
CoreWeave—which rents hourly access to Nvidia graphics processing units so developers can build more advanced AI models, according to CNBC—holds a huge inventory of Nvidia’s slower chips.
Most of CoreWeave’s AI chips – some 250,000 H-100 Hopper chips, noted CNBC—were in-demand a few years ago but not so much now. The Hopper chips were state of the art and scarce in 2023 and 2024 as AI companies scrambled to buy them when ChatGPT was rapidly gaining users in 2023, CNBC reported.
Now, Nvidia’s Blackwell GPUs – which started shipping late last year—are blowing Hopper chips out of the water. Hopper chips are “fine” for some circumstances but “not many,” Nvidia CEO Jensen Huang joked at Nvidia’s GTC conference last week, CNBC wrote.
The risk to CoreWeave? As new chips come out, the value to developers and hence the rate the company can charge to rent its Hopper chips will drop. That price drop could threaten CoreWeave’s top line—especially with Blackwell systems in full production. When Nvidia launches an upgraded version of Blackwell in late 2026, the price of Hopper chips will go down, as will the price of renting them, Huang said.
CoreWeave’s rental rates have plunged and are likely to keep dropping. H100s rented at $8 per hour in 2023—which has since plunged more than 66% to below $2/hour, noted CNBC.
To compete with Blackwell on price per output, CoreWeave would need to slash its rental rate to 65% below what customers pay for the Blackwell. More specifically, CoreWeave would need to charge 98 cents per hour to match the $2.20 per hour per GPU for a Blackwell rack systems, analyst firm SemiAnalysis told CNBC.
CoreWeave may keep struggling to provide developers with state-of-the-art chips at competitive prices. As it strains against too much old inventory, the company may write off the value of its older chips faster than expected—which would cut into earnings, noted Barclays analyst Ross Sandler in a March 21 report featured by CNBC.
CoreWeave says change to its “significant” assumptions about the useful lifetime of its AI infrastructure, could hurt its business or future prospects, noted the company’s prospectus.
High Cash Burn Rate And Rising Debt
CoreWeave is not adding enough value to the chips it buys from Nvidia to charge a high enough price to generate positive cash flow. Meanwhile, the company is borrowing heavily—collateralized by Nvidia chips, noted the Journal.
To satisfy its revenue growth. CoreWeave’s cash burn rate soared nearly six-fold to about $6 billion in 2024 “because of the heavy capital expenditures to build out its AI infrastructure,” the Journal wrote.
So, it comes as little surprise CoreWeave had trouble complying with the terms of a $7.6 billion loan from Blackstone. The good news is CoreWeave “did not miss any payments under the loan facility,” according to the Financial Times.
The bad news is CoreWeave “made a slew of serious administrative errors, which stemmed from beginning to use the financing to expand into western Europe,” noted The Financial Times, which was prohibited by loan contract terms restricting the debt’s collateral to the U.S.
This highlights another risk of concern to investors—“material weaknesses in internal control over financial reporting,” noted the IPO prospectus. The default incident cast a “horrific” light on CoreWeave’s internal controls given how “obvious” the restrictions were, a hedge fund manager told The Financial Times.
Weak internal controls are particularly troubling for a company so heavily dependent on debt. By the end of 2024, CoreWeave had raised $12.9 billion of debt and had drawn about $8 billion from the facilities, according to its latest financial report.
The cash outflows to meet repayment obligations are significant. The company must make “nearly $7.5bn in debt and interest payments by the end of next year,” reported The Financial Times.
Neither Blackstone nor CoreWeave commented on The Financial Times report.
Will CoreWeave Stock Keep Rising After Its IPO?
To profit from investing in CoreWeave, investors will need many things to go their way. The stock will likely rise only if the company can beat and raise in future quarters.
Moreover, CoreWeave lacks the capital those larger rivals can deploy and will not get enough from the IPO to close the distance—especially since the company has said $1 billion is earmarked to pay down debt, noted the Journal.
The success of CoreWeave also depends on whether demand for AI continues to grow very rapidly. “We believe this structure may continue to work as long as demand for AI continues to grow exponentially,” D.A. Davidson analyst Gil Luria wrote in a March 24 report where he set a neutral rating on CoreWeave’s shares, according to the Journal.
With Nvidia stock down 10% so far this year and the company’s growth rate slowing down as I wrote in a February Forbes post, it remains unclear how CoreWeave can sustain fast enough growth to exceed the high expectations embedded in its post-IPO stock price.
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