Photo credit: www.cnbc.com
CoreWeave has emerged as a significant player in the GPU cloud market, boasting a portfolio of 250,000 Nvidia graphics processors. As the company prepares for its public offering, it is banking on this vast inventory to attract investor interest. However, the rapid evolution of artificial intelligence hardware raises important questions about the sustainability of this demand and potential implications for investors.
In recent financial disclosures, CoreWeave highlighted that many of its AI chips come from Nvidia’s Hopper generation, a range that was considered top-tier during 2023 and early 2024. Following the introduction of ChatGPT by OpenAI in late 2022, the demand for these chips skyrocketed, prompting AI companies to acquire them extensively.
However, Nvidia’s CEO Jensen Huang indicated that the Hopper series is quickly being overshadowed by the newer Blackwell generation of GPUs, which began shipping in late 2024. Huang jokingly remarked that while Hopper chips are “fine” for certain applications, their capabilities pale in comparison to Blackwell. He noted that in AI reasoning tasks, Blackwell offers a performance leap of 40 times over Hopper, which presents a challenge for companies reliant on the older chips.
This technological shift poses significant concerns for CoreWeave, as their business model is predicated on the rental potential of Nvidia chips over the next five to six years. While Nvidia seeks to bolster its sales by promoting new technology, this trend could undermine CoreWeave’s market position. As discussed at Nvidia’s GTC conference, older chips tend to experience price reductions when newer models are introduced, leading to decreased rental fees.
Even though older GPUs like the H100 remain operational, they are not immune to the advancements of newer technology. CoreWeave’s strategy involves utilizing Hopper chips over several years, yet Nvidia’s emphasis on the enhanced efficiencies of Blackwell could compel rental markets to favor the newer systems, driving costs down for older models.
Analysts estimate that for Hopper chips to remain competitively viable, they would need to rent at approximately $0.98 per hour to match the output pricing of Blackwell systems set at $2.20 per hour per GPU, significantly lower than the $8 per hour prices observed in 2023.
The cloud hosting industry could be facing a shift towards shorter useful life cycles for AI chips, as outlined by Barclays analyst Ross Sandler. While his observations focused primarily on the giants such as Meta, Google, and Amazon, the implications resonate with smaller providers like CoreWeave. Rapid technological advancements mean older assets may become less valuable more quickly, raising concerns over profit margins and equipment depreciation.
CoreWeave acknowledged the potential risks associated with changes to the estimated lifetimes of its AI technology, emphasizing that such shifts could adversely affect its prospects and operations. The company has made significant financial commitments, having borrowed nearly $8 billion to acquire Nvidia chips and expand its data centers, occasionally using these GPUs as collateral in transactions.
As investor inquiries increase regarding the longevity of AI infrastructure and the need for adjusted financial depreciation schedules, CoreWeave remains committed to providing cutting-edge technology. The company has expressed dedication to continuously upgrading its capabilities, ensuring that outdated components are replaced promptly with the latest technologies.
CoreWeave maintains a positive working relationship with Nvidia, a company that holds a stake of over 5% in the New Jersey firm. Huang recently expressed pride in CoreWeave’s progress, yet Nvidia’s roadmap for releasing new technologies threatens the commercial viability of earlier models, posing a challenge for CoreWeave’s goals.
WATCH: CoreWeave begins marketing IPO, targeting price range of $47-$55 per share: Report
Source
www.cnbc.com