Summary:
CoreWeave is backed by Nvidia and is preparing for an IPO, marking a potential first for generative AI stocks.
The company pivoted from cryptocurrency mining to an AI cloud provider, showing remarkable growth from $15.8 million to $1.9 billion in revenue within two years.
CoreWeave is planning to raise billions through its IPO, but has accumulated $7.9 billion in debt while facing significant cash flow issues.
A large portion of its revenue (62%) comes from Microsoft, raising concerns about dependency and competition.
Investors are advised to be cautious about buying into the IPO, as it may launch with a premium valuation and face potential underperformance.
In recent years, the IPO market has been notably quiet, especially following a surge of new listings between 2020 and 2021, many of which were poorly managed or fraudulent. However, the artificial intelligence (AI) sector might just be ready to reinvigorate this landscape. Last week, CoreWeave, an AI cloud startup backed by Nvidia, filed its financial statements for an IPO, potentially marking the first generative AI stock to enter public markets.
Rapid Growth Thanks to AI
Originally a cryptocurrency mining operation, CoreWeave transitioned to an AI cloud provider in late 2022, capitalizing on the demand for AI technologies like ChatGPT. In 2023, Nvidia invested $100 million in CoreWeave, which has now positioned itself against giants like Amazon Web Services, Microsoft Azure, and Google Cloud. The numbers are impressive: CoreWeave generated $1.9 billion in revenue in 2024, skyrocketing from $15.8 million in 2022, and achieved $324 million in operating income.
Demand Needs to Show Up
CoreWeave plans to raise billions via its IPO, aiming to list its Class A common stock on the Nasdaq under the symbol CRWV. However, scaling a cloud business demands significant capital. In 2024, CoreWeave had $8.7 billion in capital expenditures and a negative $6 billion in free cash flow, accumulating $7.9 billion in debt. Their S-1 filing reveals $15.1 billion in performance obligations from customers, indicating potential future revenue, yet this doesn't guarantee success.
A staggering 62% of CoreWeave's revenue comes from Microsoft, a competitor that could redirect its spending if growth stalls, putting CoreWeave in a precarious position.
Should You Buy the CoreWeave IPO?
Despite the excitement surrounding CoreWeave as a generative AI-focused stock, potential investors should tread carefully. The Nasdaq Composite is currently experiencing a downturn, and CoreWeave may launch with a premium valuation, burdened with debt and significant cash flow issues. Given its reliance on Microsoft, investors should consider monitoring the situation rather than jumping in immediately. Historically, IPOs tend to underperform in their first year; CoreWeave is likely no exception. If you're interested in CoreWeave, keep it on your watch list for now.
Comments