Michael Intrator, co-founder and CEO of CoreWeave, on Centre Stage during day two of Web Summit 2024 at the MEO Arena in Lisbon, Portugal.
Carlos Rodrigues | Sportsfile | Getty Images
When SuRo Capital CEO Mark Klein brought up the name CoreWeave to Wall Street tech analysts last summer, he would sometimes get looks of confusion. They’d never heard of the company.
Klein, meanwhile, was building a big position in a startup that he viewed as becoming a key player in artificial intelligence infrastructure. In May, his firm invested $15 million in the company, and by the end of the year it hat a put in a total of $25 million, accounting for 17% of its fund.
It was SuRo’s biggest bet in its14-year history, even topping the $17.5 million it invested in OpenAI.
On his firm’s earnings call in May, after the initial transaction, Klein called out CoreWeave’s access to Nvidia’s graphics processing units (GPUs) and said the company was providing the technology necessary for AI developers to train their high-powered models.
“Over the last few months, CoreWeave has cemented itself as a leader in AI infrastructure,” Klein said on the call.
Ten months later, Klein and his fellow AI bulls have turned their attention to the Nasdaq, where CoreWeave is set this week to become the first pure-play AI company to hit the stock market. The company’s IPO is a landmark event for an industry that has exploded since the launch of OpenAI’s ChatGPT in late 2022 — and has also attracted billions of dollars in capital from tech giants, hedge funds, private equity firms and venture capitalists.
But there are ample reasons for skepticism. The IPO market has been very slow to reopen after slamming shut more than three years ago, when rising interest rates and soaring inflation pushed investors out of risky assets. And tech stocks have been particularly volatile to start 2025 due to President Donald Trump’s tariffs on the country’s top trading partners, and concerns that massive government cost cuts will push the economy into a recession.
The Nasdaq is down more than 7% so far this year, on pace for its worst quarterly performance since mid-2022. Chipmaker Cerebras was slated to be the first AI IPO, but that deal got caught up in a national security review soon after the company filed to go public in September. It remains on the sidelines.
“This is a very important IPO for the overall market,” said Tim Guleri, managing partner at Sierra Ventures, referring to CoreWeave. “We’ve had a very dry spell.” Guleri’s AI investments include Weav.ai, which develops tools for insurers.
CoreWeave has sizable ambitions as it brings its story to Wall Street. The company, which was founded in 2017 to focus on crypto mining infrastructure before pivoting to AI, plans to raise up to $2.7 billion at the top end of its range of $47 to $55. The deal would value the company at well over $25 billion and potentially lift CEO Michael Intrator’s net worth to $3.5 billion.
If the underwriters exercise their full purchase options, the IPO could top $3 billion, which would make it one of the top 10 U.S. tech IPOs on record, and the largest in at least four years.
CoreWeave said in its IPO prospectus earlier this month that revenue in 2024 soared more than 700% to $1.92 billion, with over 60% coming from Microsoft.
The largest institutional investor in CoreWeave is Magnetar, a hedge fund based outside of Chicago, which will own about 29% of the Class A shares after the offering. SuRo’s biggest stake in CoreWeave was acquired through a special purpose vehicle (SPV), called CW Opportunity 2, that Magnetar raised last year. That fund invested in CoreWeave at a $19 billion valuation.
“When we made our investment initially, what was attractive to us was the growth rate of the industry in its totality, the acceleration of spend, and the fact that they had such a high degree of contractual revenue,” Klein said. He added that “the supply-demand imbalance between the need for compute and the availability of compute” was unlike anything he’d seen before.
In addition to Microsoft, CoreWeave provides data center AI technology and services for companies including Meta, IBM and Cohere.
‘Picks and shovels’
According to Forge Global, which tracks private market transactions, private AI companies have increased in value by 60% over the past six months. The Nasdaq is little changed over that stretch.
CoreWeave is among the most highly valued AI startups, but it’s not at the top. That position is held by OpenAI, which was valued at $157 billion in October and, as of last month, was finalizing a deal that would up that number to $260 billion. Anthropic is next at $61.5 billion, followed by Elon Musk’s xAI at $50 billion.
Those companies are all very different from CoreWeave in that they develop models that power the generative AI apps and chatbots used by consumers and businesses.
CoreWeave is supplying some of that critical technology, pulling together Nvidia GPUs into large data centers and providing access via the cloud. The company said in its prospectus that it wrapped up 2024 with 32 data centers, which housed more than 250,000 Nvidia GPUs. In October, CoreWeave announced a $650 million credit line to expand its business and data center portfolio.
CoreWeave says its top competitors include Amazon Web Services, Google Cloud, Microsoft Azure, IBM and Oracle.
On a past SuRo earnings call, Klein said he’s investing in the “picks and shovels of the AI universe.”
Klein told CNBC that CoreWeave is gearing up to lead an “IPO parade,” clearing out some of the backlog of tech companies that would have gone public already if not for the market conditions. One name he mentioned was online lender Klarna, which filed its prospectus earlier this month.
On his firm’s earnings call this month, Klein said, “This is as large of a pipeline of pre-IPO businesses as we can recall in the fund’s history.”
PitchBook analyst Navina Rajan told CNBC that towards the end of 2024, valuations improved and set the stage for an “IPO window” this year.
OpenAI also has a financial interest in the outcome of CoreWeave’s debut. Earlier in March, OpenAI signed a five-year deal to use the company’s infrastructure. As part of the agreement, OpenAI will receive a stake in CoreWeave tied to the IPO worth about $350 million.
Igor Taber, founder and general partner of Cortical Ventures, said CoreWeave’s debut is “definitely a bellwether” for the broader tech IPO market.
But valuing the business isn’t straightforward. Pure software companies command a higher multiple than data center companies, which sell equipment that wraps up technology from other vendors. CoreWeave falls more into the latter camp, Taber said.
“At its core, CoreWeave is a reseller of GPUs — so they buy infrastructure from companies like Nvidia, and then they rent out those GPUs to customers,” Taber said. “Their gross margin is significantly below what you would typically expect from a pure software company.”
But looking at large-cap tech companies, CoreWeave’s profit margin compares favorably. In 2024, the company’s gross margin, or the percentage of revenue left after accounting for the cost of goods sold, was 76%. At Microsoft, that number was 70%, while Alphabet recorded a gross margin of 58%.
Those numbers are much lower at Dell, Hewlett Packard Enterprise and Super Micro, which all sell servers with GPUs inside. Dell’s gross margin was about 22%, while HPE’s was 34% and Super Micro’s was 14%.
However, CoreWeave recorded $8.7 billion in property and equipment costs for the year, and the business contains high operating costs, including depreciating infrastructure, and interest expenses. CoreWeave had a net loss of $863.4 million for the year with net debt of $8 billion.
“In short, the core service is high-margin, but the heavy infrastructure investments and financing costs currently outweigh those gains,” wrote Matt Turck, a partner at venture firm FirstMark, in a blog post after the prospectus was released.
CoreWeave declined to comment.
CoreWeave announced in early March that it was acquiring Weights & Biases, a developer platform for AI models and applications. According to the IPO prospectus, the purchase price will primarily be 20.4 million shares of CoreWeave stock, which is equivalent to about $1 billion at the mid-point of the range. Taber said the acquisition could help CoreWeave’s efforts to show investors it’s a software company.
Market will change
Julie Brewer, the executive vice president of finance at EdgeCore, said her company is watching closely how CoreWeave performs on the market. EdgeCore offers leases on its data center campuses to companies that rent out GPUs.
CoreWeave is “ultimately an extension of what EdgeCore is doing, in terms of the products that we are serving and ultimately delivering,” Brewer said. “We’re very much watching CoreWeave to understand how investors and the public markets are thinking about their assets, their contracts, their revenue stream.”
Guleri of Sierra Ventures used the metaphor “AI infrastructure cake,” and said CoreWeave is the bottom layer, a logical place to see the first IPO.
That layer is “a very important part of the overall ecosystem that enables the production of these large language models and advanced AI infrastructure,” Guleri said.
One potential concern for Wall Street is that it’s not clear how CoreWeave’s business model will hold up when the GPU market shifts. The boom in AI of the last couple years has created such high demand for GPUs that big suppliers like CoreWeave have built-in business and a level of pricing power.
“Their model works really well in a GPU-constrained environment where the demand for GPUs significantly outpaces supply,” Taber said. “How does the business model scale when you may not be in a GPU-constrained environment?”
When ChatGPT launched, GPU prices spiked. CoreWeave locked in long-term enterprise contracts with big tech companies, so it hasn’t felt the price fluctuations that have taken place since. However, as prices come down, CoreWeave will have to adjust to a flattening supply-demand curve and some price normalization.
Steve Jang, managing partner at Kindred Ventures, said CoreWeave should be well-positioned for the next few years. But competition is on the way from both hyperscalers and startups, and the company will have to be flexible, building out more applications and tools to maintain its early lead.
For many public market investors, the decision of whether to buy into CoreWeave may come down to whether it’s better to take the risk or funnel more money into Nvidia. Even with its growth slowing from historic rates a few quarters ago, analysts still expect Nvidia’s revenue to increase by almost 60% this fiscal year.
“The big winner here is Nvidia — they’re going to have GPUs in the hyperscalers, the neoclouds or the regional data centers,” Jang said. “We think that growth is going to be astronomical.”
