Today, CoreWeave began trading on the stock market, and it is looking like an inauspicious start for the AI sector. The company had initially hoped to sell shares for $47 to $55 a piece, but began trading at $39 despite being propped up by Nvidia with a massive $250 million order at $40 per share. When you look under the hood, CoreWeave is a dog of a company, with business fundamentals that raise a lot of questions, explaining the less than enthusiastic demand by investors.
CoreWeave in recent years found itself in something of an enviable position. Starting out in 2017, it bought GPUs to supply to the cryptocurrency mining industry, only to pivot to AI when that became the hot new trend. CoreWeave is fundamentally a picks and shovels business: It supplies GPUs to an industry that has desperately sought them.
The most immediate concern, though, is that the industry does not need them as much today. CoreWeave is going public just as its biggest customer, Microsoft, has pulled back on spending in AI infrastructure, releasing its leases on data centers globally and allowing OpenAI to find other partners. Chips were suddenly in huge demand after OpenAI launched ChatGPT in 2023, but the supply shortage seems to be subsiding in a way that could be bad for CoreWeave. From the Wall Street Journal:
The supply shortage has since subsided, and companies say it’s comparatively easy to buy the required chips. Renting a GPU for an hour cost about $5.50 in mid-2023; it’s now $1.55, said Evan Conrad, chief executive of San Francisco Compute, a market for GPUs.
To put into context the risk here, Microsoft accounted for a whopping 62% of CoreWeave’s revenue in 2024. But it has declined optioning a further $12 billion in infrastructure, which had to be taken by OpenAI instead.
Furthermore, Nvidia has been a major backer of CoreWeave, only to have the money come straight back as CoreWeave used the money to buy Nvidia GPUs, accounting for 6-7% of Nvidia’s business. Being propped up by just two companies, Microsoft and Nvidia—the former of which is cooling on AI—does not seem like a position of strength.
Even worse, CoreWeave is suffocating under a heavy debt burden. Despite bringing in $1.9 billion in 2024 revenue, CoreWeave burned $6 billion last year and $1.1 billion the previous year because of the heavy expenses to build out its AI infrastructure. It has raised eyebrows in the past over carrying nearly $8 billion in debt and using the GPUs themselves as collateral, which certainly seems concerning as GPU prices decline and more efficient AI models require less resources. At the very least, CoreWeave is expected to raise around $1.46 billion in the public offering that will allow it to pay down some debt.
If CoreWeave continues to underwhelm in the days and weeks to come, that could cause problems for other AI companies hoping to go public. And they need it, too—investors demand returns, especially as few companies went public in recent years.
CoreWeave, if anything, could be seen as the first barometer of current market stress for GPUs. Nvidia CEO Jensen Huang and others in the industry have argued that new “thinking” models require more resources, and as more consumers use AI, the demand for GPUs could continue to rise for years to come even as models become more efficient. But again, these are picks and shovels businesses; of course they will say you need more picks and shovels. OpenAI’s Sam Altman posted on X yesterday that demand for ChatGPT’s new image generator was “melting” GPUs. Whether that was a short-lived fad as people made novelty Studio Ghibli knockoffs, or something more sustainable, remains to be seen.
Either way, there is no doubt that CoreWeave seems to be on particularly shaky ground. What happens as chip prices continue to decline and major tech giants build their own Nvidia competitors in-house? Why then would CoreWeave be a $32 billion company, as it is expected to be valued on the first day of trading? And what if the AGI boom does not come to pass? This company has been propped up by excessive hype over the past two years, selling picks and shovels, before any other critical AI company has gone public and proven these products are more than glorified next-word predictors with the reliability of an unpaid intern.
“None of these companies are making any profit off of generative AI, and outside of OpenAI, there really isn’t the demand for these services,” said Ed Zitron, a public relations expert and host of Better Offline. “If there was, Microsoft wouldn’t have just pulled out of 2GW of future compute capacity.”
CoreWeave’s three founders will be fine either way. They cashed out $500 million of their holdings between 2023 and 2024.
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