CoreWeave listed on the Nasdaq Friday amid a shifting narrative and much anticipation. The company priced its IPO at $40 per share. The stock flailed, opening at $39 per share, then falling as much as 6% and ending the day back up at $41.59.
The cloud firm, founded in 2017, is the first pure-play AI public offering in the US. CoreWeave buys graphics processing units from Nvidia and then pairs them with software to give companies an easy way to access the GPUs and achieve the top performance of their AI products and services.
The company’s financial future is dependent on two unknowns — that the use and usefulness of AI will grow immensely, and that those workloads will continue to run on Nvidia GPUs.
It’s no wonder that the listing has often been described as a bellwether for the entire AI industry.
But CoreWeave’s specific business has some contours that could be responsible for Friday’s ambivalent debut without passing judgment on AI as a whole.
CoreWeave customers are highly concentrated and its suppliers are even more so. The company is highly leveraged, with billions in debt, collateralized by GPUs. The future obsolescence of those GPUs is looming.
Umesh Padval, managing director of Thomvest expects the pricing for the GPU computing CoreWeave offers to go down in the next 12 to 18 months as GPU supply continues to improve, which could challenge the company’s future profitability.
“In general, it’s not a bellwether in my opinion,” Padval told Business Insider.
Beyond opening day
So what does it mean that CoreWeave’s debut didn’t rise to meet hopes and expectations?
Karl Mozurkewich, principal architect at cloud firm Valdi told BI the Friday IPO is more of a test for the neocloud concept than for AI. Neoclouds are a term used to describe young public cloud providers that solely focus on accelerated computing. They often use Nvidia’s preferred reference architecture and, in theory, demonstrate the best possible performance for Nvidia’s hardware.
Nvidia CEO Jensen Huang gave the buch a shoutout at the company’s tentpole GTC conference last week.
“What they do is just one thing. They host GPUs,” Huang said to an audience of nearly 18,000. “They call themselves GPU clouds, and one of our great partners, CoreWeave, is in the process of going public and we’re super proud of them.”
CoreWeave’s public market performance will signal what shape the future could take for these companies, according to Mozurkewich. Will more companies try to replicate the GPU-cloud model? Will Nvidia seed more similar businesses? Will it continue to give neoclouds early access to new hardware?
“I think the industry is very interested to see if the shape of CoreWeave is long-term successful,” Mozurkewich said.
Daniel Newman, CEO of the Futurum Group, told BI that CoreWeave is “one measuring point of the AI trade; it isn’t entirely indicative of the overall AI market or AI demand.” He added the company has the opportunity to improve its fate as AI scales and the customer base grows and diversifies.
Lucas Keh, Semiconductors Analyst at Third Bridge agreed.
“Currently, more than 70% of CoreWeave’s revenue comes from hyperscalers, but our experts expect this concentration to decrease 1—2 years after an IPO as the company diversifies its customer base beyond public cloud customers,” Keh said via email.
Having a handful of large, dominant enterprise customers is not uncommon for a young provider like CoreWeave, Mozurkewich said. But it’s also no surprise that it could concern investors.
“This is where CoreWeave has a chance to shine as AI and the demand for AI spans beyond the big 7 to 10 names. The caveat will be how stable GPU prices are as availability increases and competition increases,” Newman said.
Other issues, like obsolescence, the necessary depreciation, and leverage will be harder to shake.
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