Why everyone is watching CoreWeave (nervously)
Billions in debt and waning demand? What could go wrong!
AI infrastructure company CoreWeave is expected to make its initial public offering on Friday. The company is expected to price its shares somewhere between $47 to $55, raising a total of up to $2.7 billion and valuing the company around $26.5 billion.
The IPO market has been ice cold, so there aren’t a lot of great comparisons, but Reddit priced its shares at $34 when it went public last year, valuing it at $6.4 billion. Cybersecurity firm Rubrik was priced at $32 for a $5.6 billion valuation.
Background: CoreWeave began as a crypto mining company called Atlantic Crypto in 2017. After the 2018 crypto crash, it pivoted, using its data centres and stock of GPUs — including many soon-to-be highly sought-after ones from Nvidia — to provide other companies with computing power, which would be in high demand as AI training took off in the subsequent years.
CoreWeave now boasts over 250,000 Nvidia GPUs, giving it the biggest stock that isn’t owned by one of the Big Tech companies.
Why it matters: As the first IPO from a significant AI company, CoreWeave is being considered a litmus test for how other startups born out of the AI boom could fare. But as the company has made the customary financial disclosures, more people are starting to think that CoreWeave is actually going to test if the markets can stomach a company that represents the albatross hanging off the AI boom: overspending, huge debt burdens, and uncertain prospects for future revenue.
The red flag: According to its filings, the company currently has $8 billion in debt, with some analysts suspecting there may be even more off the books. Those came from hefty loans it took out at interest rates of up to 14% to build out data centres. Interest payments on those loans could reach as high as $2 billion annually by the end of next year.
Given that CoreWeave lost $863 million last year despite bringing in $2 billion in revenue, there is very reasonable concern that the company could default.
Technically, it already did, though not due to a missed payment. CoreWeave breached terms when it mistakenly used a loan that was to be exclusively spent in the U.S. to expand in Europe, leading it to ask lender Blackstone to amend the terms of the deal.
This debt could also hit CoreWeave’s demand. Like any piece of technology, GPUs are a depreciating asset — their value goes down over time when Nvidia and other chipmakers are develop new, more powerful chips. With its debt load and balance sheet, CoreWeave is not in a great place to invest in the hardware clients are going to want.
The other red flag: Even without that debt, CoreWeave’s sales prospects put it on shaky ground. That nearly $30 billion valuation means it would expect to grow revenue at a 30% annualized rate for seven years. That seems…ambitious for the best company, let alone one in CoreWeave’s position. CoreWeave’s filings showed that upwards of 60% of its revenue comes from a single customer: Microsoft.
New analysis published yesterday suggests Microsoft has been walking away from more data centre expansion projects after already reportedly pulling out of contracts with CoreWeave.
A few months ago, betting on AI infrastructure demand might not have seemed like a bad idea — even AI skeptics would recognize that companies were willing to pump cash into the industry, especially if you were selling computing power. But things changed with DeepSeek putting the need for buying all these chips into question.
It’s not just Microsoft. Chinese tech giant Tencent said last week that it had slowed down its GPU rollout — with most of what it is spending on new GPUs not going to AI, but its gaming and advertising divisions.
A new report claims that many data centres in China are sitting idle, with local reports suggesting as much as 80% of computing power is going unused in some areas.