Through July, AI infrastructure specialist CoreWeave (CRWV +2.01%) has been the biggest initial public offering (IPO) of the year.
CoreWeave's actual public offering was a disappointment. It was both undersubscribed and priced lower than the company intended. In fact, Nvidia (NVDA +2.71%) had to come in and help rescue the offering by buying a large position in the IPO. The opening day performance was also a dud, and the stock opened down from its IPO price of $40 and closed even with it, showing underwhelming interest.
However, since the late March debut, broad market trends have shifted, and AI stocks are back in vogue as concerns about a trade war and a recession have receded.
As a result, CoreWeave stock surged as high as $188 before a recent pullback, though it's still trading at more than triple its IPO price.
Image source: Getty Images.
What CoreWeave does
CoreWeave was founded as Atlantic Crypto, an Ethereum miner, but pivoted its business model in the crypto winter of 2018-2019 when crypto mining fell on hard times and it discovered that the idle GPUs it owned could be rented out instead as computing capacity to run AI applications and models.
Today, the company provides generative AI-focused cloud computing infrastructure through its CoreWeave Cloud Platform, which combines proprietary software and cloud services to manage and deliver the AI infrastructure needed to power the leading AI models.
NASDAQ: CRWV
Key Data Points
As a cloud platform purpose-built for generative AI, CoreWeave is differentiated from the giant hyperscalers -- Microsoft, Amazon, and Alphabet -- some of which are the company's biggest customers. For example, its platform delivers higher performance and more uptime than alternative offerings, allowing its customers to build their AI models faster.
In part because of its close relationship with Nvidia, CoreWeave is also regularly the first cloud provider to deploy new AI instances (i.e., resources). In recent weeks, it has made two such announcements. For example, it became the first company to make Nvidia RTX PRO 6000 Blackwell Server Edition instances generally available, which achieve 5.6 times faster large language model inference than the previous generation.
CoreWeave has some key partners
Among the risks investors pointed out when CoreWeave went public was its customer concentration. Its prospectus said that Microsoft accounted for 62% of its revenue in 2024.
Due to the nature of its business, CoreWeave has a small number of customers, including start-ups like Mistral, Cohere, and OpenAI, and big tech companies like Microsoft, Meta Platforms, Alphabet, IBM, and Nvidia. Management said in its first-quarter earnings report that no company makes up more than 50% of its backlog.
While customer concentration is a risk, the relationships with these companies are also a source of strength, especially with Nvidia, which owns 24.2 million shares of CoreWeave, currently worth roughly $3 billion. OpenAI also invested $350 million in the company in March, which is likely worth several times more today. That came as part of a deal for OpenAI to pay $11.9 billion to CoreWeave over five years.
Because both companies are investors in CoreWeave, they are more likely to remain customers and support its business, creating a symbiotic relationship.
Why CoreWeave has big potential
Management is reporting blistering growth. In the first quarter, revenue jumped 420% to $981.6 million, showing off the surging demand for its services as well as the speed with which it's expanding its capacity.
Demand for AI computing is expected to grow for years, if not decades, and CoreWeave is poised to be a leader in AI cloud infrastructure. The company is still deeply unprofitable due to the need to acquire GPUs to run its cloud platform, but it makes sense to invest when revenue is growing by triple digits.
While CoreWeave is certainly risky, and valuing the stock is difficult right now, it has considerable upside potential, even after tripling from its IPO price in just a few months.
