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Michael Intrator, co-founder and CEO of CoreWeave, appeared on Centre Stage during the second day of Web Summit 2024 at the MEO Arena in Lisbon, Portugal.
When SuRo Capital CEO Mark Klein mentioned CoreWeave to Wall Street tech analysts last summer, he frequently encountered puzzled expressions. Many analysts were unfamiliar with the emerging company.
Klein was investing significantly in this startup, viewing it as a potential key player in the field of artificial intelligence infrastructure. By May, his firm had poured $15 million into CoreWeave, which by year’s end increased to a total of $25 million, making up 17% of SuRo’s fund — marking the largest investment in SuRo’s 14-year existence, even surpassing their $17.5 million stake in OpenAI.
During a May earnings call following the initial investment, Klein emphasized CoreWeave’s access to Nvidia’s powerful graphics processing units (GPUs), highlighting its role in providing the necessary technology for AI developers to train advanced models. “Over the last few months, CoreWeave has cemented itself as a leader in AI infrastructure,” Klein stated during the call.
Fast forward ten months, and CoreWeave is now preparing for its initial public offering (IPO), set to become the first pure-play AI company to list on the Nasdaq. This IPO is particularly significant for an industry that has surged since OpenAI’s ChatGPT debuted in late 2022, drawing in billions of dollars from tech giants, hedge funds, private equity, and venture capitalists.
Despite the excitement, skepticism looms. The IPO market has been sluggish since it largely froze over three years ago due to rising interest rates and increasing inflation, which drove investors away from riskier assets. Following the introduction of tariffs on key trading partners and concerns over government spending cuts potentially leading to a recession, tech stocks have experienced notable volatility as 2025 began.
The Nasdaq has declined over 7% this year, on track for its poorest quarterly results since mid-2022. Although the chipmaker Cerebras was initially expected to be the first AI IPO, its plans have been hindered by a national security review after its public filing in September.
CoreWeave harbors ambitious plans as it approaches its Wall Street debut. Established in 2017 originally for crypto mining infrastructure, the company is looking to raise as much as $2.7 billion, pricing its shares between $47 and $55. If successful, this would value CoreWeave at over $25 billion and could elevate CEO Michael Intrator’s net worth to $3.5 billion.
Should the full purchase options be exercised by underwriters, the IPO might exceed $3 billion, potentially securing its position among the top ten tech IPOs in U.S. history, and the largest in the past four years.
According to the recent IPO prospectus, CoreWeave anticipates that its revenue for 2024 will have risen more than 700% to $1.92 billion, with over 60% of that coming from Microsoft.
The primary institutional investor in CoreWeave is Magnetar Capital, a hedge fund based near Chicago, which will hold approximately 29% of the Class A shares post-offering. SuRo’s substantial stake in CoreWeave was acquired through a special purpose vehicle (SPV) named CW Opportunity 2, which Magnetar established last year at a valuation of $19 billion.
Mark Klein, reflecting on their initial investment rationale, reiterated the industry’s robust growth rate, escalating spending, and CoreWeave’s strong contractual revenue. He noted, “The supply-demand imbalance between the need for compute and the availability of compute is unparalleled.”
In addition to Microsoft, CoreWeave supplies AI technology and services to major players like Meta, IBM, and Cohere.
Infrastructure Backbone
As tracked by Forge Global, the valuation of private AI firms surged by 60% in the past six months, in contrast to relatively stagnant figures in the Nasdaq.
Though CoreWeave is one of the more highly valued AI startups, it does not lead the pack. That honor belongs to OpenAI, valued at $157 billion in October and negotiating a deal to boost its valuation to $260 billion. Anthropic and Elon Musk’s xAI follow, with valuations of $61.5 billion and $50 billion, respectively.
These companies differ markedly from CoreWeave, as they develop models powering generative AI applications and chatbots utilized by consumers and businesses. In contrast, CoreWeave operates as a provider of essential technology, combining Nvidia GPUs into expansive data centers and offering cloud access. Its prospectus noted that it completed 2024 with 32 data centers housing over 250,000 Nvidia GPUs. Additionally, CoreWeave announced a $650 million credit line in October aimed at expanding its business and data center infrastructure.
CoreWeave identifies its leading competitors as industry giants including Amazon Web Services, Google Cloud, Microsoft Azure, IBM, and Oracle.
On a previous earnings call, Klein used the metaphor of investing in the “picks and shovels” of the AI industry.
Klein has indicated that CoreWeave is preparing for an “IPO parade” to address the backlog of other tech firms awaiting market conditions to improve. He pointed to online lender Klarna, which recently filed its prospectus as an example.
On another earnings call this month, Klein noted, “This is the largest pipeline of pre-IPO businesses we have seen in the fund’s history.”
Analyst Navina Rajan from PitchBook suggested that improving valuations late last year could pave the way for an “IPO window” in 2025.
OpenAI has its interests in CoreWeave’s forthcoming debut as well, having entered into a five-year agreement to utilize the company’s infrastructure. This partnership will reportedly provide OpenAI with a stake in CoreWeave valued at approximately $350 million linked to the IPO.
Igor Taber, founder of Cortical Ventures, remarked that CoreWeave’s upcoming launch serves as a potential “bellwether” for the wider tech IPO market.
However, accurately assessing CoreWeave’s value is complex. Software companies generally attract higher valuations than data center firms, which typically resell technology from other vendors. According to Taber, CoreWeave’s business alignment falls within this latter category.
“Essentially, CoreWeave is a reseller of GPUs — they procure infrastructure from companies like Nvidia and then lease out those GPUs to clients,” Taber explained, adding that the company’s gross margin is likely lower than that of pure software companies.
Despite this, when compared to large-cap tech firms, CoreWeave’s profit margins appear favorable. For example, its 2024 gross margin was recorded at 76%, compared to Microsoft’s 70% and Alphabet’s 58%. However, companies like Dell and Hewlett Packard Enterprise, which sell servers incorporating GPUs, see significantly lower margins.
Nonetheless, CoreWeave incurred $8.7 billion in property and equipment costs last year, alongside considerable operating expenses like infrastructure depreciation and interest. The company reported a net loss of $863.4 million for the same year and holds net debt of approximately $8 billion.
“In summary, the core service is high-margin, yet the considerable investments in infrastructure and financing costs currently overshadow those gains,” noted Matt Turck of FirstMark in a blog post following the prospectus release.
CoreWeave did not provide any comments upon request.
In March, CoreWeave made headlines with the announcement of its acquisition of Weights & Biases, an AI model and application developer platform. According to the IPO prospectus, the acquisition will largely consist of 20.4 million shares of CoreWeave stock, equivalent to roughly $1 billion at the midpoint of the pricing range. Taber believes this acquisition could strengthen CoreWeave’s position in demonstrating its software credentials to investors.
Evolving Landscape
Julie Brewer, Executive Vice President of Finance at EdgeCore, expressed keen interest in monitoring CoreWeave’s market performance. EdgeCore specializes in leasing data center spaces to companies that rent GPUs.
Brewer remarked that CoreWeave serves as “an extension of what EdgeCore is doing, in terms of the products we provide and ultimately deliver,” emphasizing her company’s attentiveness to CoreWeave’s trajectory and how it may inform investor sentiments regarding their contracts and revenue streams.
Guleri from Sierra Ventures likened CoreWeave’s position to the “bottom layer of an AI infrastructure cake,” which he sees as a logical point for this maiden IPO.
The foundational layer is considered “crucial for the overall ecosystem that enables the development of expansive language models and advanced AI infrastructure,” he noted.
One significant concern for potential investors is the uncertainty surrounding how CoreWeave’s business model will adapt to shifts in the GPU market. The recent AI boom has generated such substantial demand for GPUs that suppliers like CoreWeave currently enjoy stable business and pricing power.
“Their business model thrives in an environment where GPU demand drastically exceeds supply,” Taber said, raising the question of how sustainability will bend when supply pressures ease.
After the ChatGPT release led to a spike in GPU prices, CoreWeave secured long-term contracts with leading tech firms, insulating it from recent price fluctuations. However, as GPU prices stabilize, CoreWeave may face challenges adjusting to a flatter supply-demand scenario, necessitating adjustments in their pricing strategy.
Steve Jang at Kindred Ventures commented that while CoreWeave appears well-positioned in the near term, escalating competition from both established tech giants and startups necessitates a flexible approach, expanding into more applications and tools to preserve its competitive edge.
For many investors in the public market, deciding whether to invest in CoreWeave may hinge on their risk appetite versus continuing investments in Nvidia. Despite Nvidia experiencing a deceleration in its earlier explosive growth, analysts predict revenue to increase nearly 60% this fiscal year.
“Nvidia stands to gain the most from this trend, as they will be supplying GPUs to hyperscalers, neoclouds, and regional data centers,” Jang added. “We anticipate that growth will be tremendous.”
WATCH: CoreWeave begins marketing IPO
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