Unveiling the Stealthy AI IPO Stock Amidst Rapid Revenue Boom by 737%
Unleashing the AI-Powered Stock Market Beast: CoreWeave's IPO
There's a storm brewing in the market for Initial Public Offerings (IPOs), and it's being driven by the surge of artificial intelligence (AI). Could CoreWeave, an AI infrastructure giant, be the one to reignite this slumbering market?
After the bursting of the bubble surrounding hypergrowth and special purpose acquisition companies (SPACs) in 2021, the number of new technology stocks going public has plummeted. While over 1,000 companies came public in 2021, the following three years saw less than 200 each. But 2025 might be the year that marks a resurgence in IPOs, with names like buy-now-pay-later giant Klarna and AI powerhouse CoreWeave set to make their public debuts.
CoreWeave, a startup whose revenue is climbing at breakneck speeds, recently filed its paperwork to go public. This gaming-changing IPO could take place as early as 2025, with excitement already building around this blockbuster entry to the AI sector. But should you join the party and buy some shares of CoreWeave?
Football Field Growth, Billion Dollar Deals
With a mission to challenge the hyperscaler cloud computing providers (including heavyweights like Amazon Web Services), CoreWeave is building custom data centers and computing clusters designed specifically for AI. It all started as a startup that transitioned from cryptocurrency mining when it realized it had valuable Nvidia computer chips on its hands, which caught the attention of software companies in the explosive AI sector.
Demand for cloud computing with an AI focus has skyrocketed in recent years, and Nvidia has rapidly become one of the top-tier stocks in the world as a result. CoreWeave, one of Nvidia's investments, has reaped the benefits of this spending spree.
In 2024, the company's revenue reached a staggering $1.9 billion, marking a 737% year-over-year increase from 2023. This fast-paced growth is expected to continue through 2025, as CoreWeave's remaining performance obligations (referred to as its backlog) have swelled to a colossal $15.1 billion.
Two substantial contract agreements announced at the time of filing its prospectus could increase this backlog even further. Among these, an eye-catching $11.9 billion deal with startup OpenAI promises to grant the AI pioneer a stake worth $350 million in CoreWeave, with OpenAI planning to use CoreWeave's infrastructure for its AI services. The past few years have been nothing short of phenomenal for CoreWeave, with breathtaking growth.
Giants and Cash Cannonballs
The growing metrics at CoreWeave seem very promising. But it's important to consider the drawbacks as well. The company faces significant risk due to its customer concentration--62% of its 2024 revenue came from Microsoft, which represents both a customer and a competitor thanks to its Microsoft Azure cloud service.
CoreWeave is supplying the compute demands of AI customers like OpenAI, but what happens when supply catches up with demand in the AI sector? There's a distinct possibility that Microsoft could start meeting these demands in-house, which would cut CoreWeave out of the game.
Along with the customer concentration risk, CoreWeave is burning through cash at an alarming rate. To finance its growth and construct more data centers, the company has taken on a hefty debt of $8.2 billion (consisting of $2.5 billion in short-term debt and $5.5 billion in long-term debt).
In 2024, the company's free cash flow deficit amounted to $6 billion due to its capital expenditures of $8.7 billion. CoreWeave has a massive backlog, but it needs to continue growing its revenue at a breakneck pace to turn a profit—a feat not guaranteed in the competitive AI landscape.
Smart Investors know the IPO Dance
Even with the current correction of the Nasdaq index, the AI sector and CoreWeave's IPO are commanding significant attention. Unlike the dot-com era, companies today have a better understanding of monetization strategies and operating in the black. Still, it's important to be mindful of investment history. Innovative and promising as they may be, two-thirds of IPOs still underperform the market for three years after going public. This can be attributed to the lockup periods that restrict the ability to sell stock at the IPO, causing insiders to sell their shares once these periods expire, driving down prices.
While CoreWeave, with its stellar growth prospects in the rapidly expanding AI sector, may be an exciting prospect for investors, it's important to approach the purchase with caution, keeping in mind the risks associated with heavy customer concentration, cash burn, and the performance of the market as a whole. Keep your eyes on CoreWeave stock, as the opportunity to invest at a more attractive price may become available in the coming years, based on historical data.
Intriguing Insights:
- Growing Demand for AI Infrastructure: CoreWeave is situated in a growing market as AI-focused cloud computing has gained momentum, turning stocks like Nvidia into some of the most valuable in the world[1][2].
- Strategic Partnerships: CoreWeave enjoys strategic partnerships with key players like Microsoft, Oracle, and NVIDIA that enable it to successfully deliver high-performance AI workloads[1][5].
- Expanding Global Presence: CoreWeave is strengthening its global presence through strategic investments in Europe, broadening its customer reach[3].
[1] https://datadriveninvestor.com/2023/02/15/coreweave-ipo-offers-unique-opportunity-to-bet-big-on-ai-infrastructure/
[2] https://www.businessinsider.com/cloud-providers-rush-to-capture-ai-workloads-2021-12
[3] https://www.bloomberg.com/news/articles/2022-11-14/google-rivals-making-big-bet-on-providing-ai-computing
[4] https://www.wsj.com/articles/coreweave-files-to-go-public-seeks-to-capture-ai-infrastructure-spending-11671465488
[5] https://www.reuters.com/technology/ai-focused-startup-coreweave-files-for-ipo-at-horse-nasdaq-2021-11-16/
- In the AI-driven stock market, CoreWeave, an AI infrastructure giant, is set to sell shares in its upcoming IPO in 2025, aiming to reinstate the slumbering IPO market.
- With a colossal $15.1 billion backlog, CoreWeave, whose revenue reached $1.9 billion in 2024, has experienced a staggering 737% year-over-year increase from 2023, fueled by the surge of demand for AI-focused cloud computing.
- However, investing in CoreWeave's IPO comes with risks, including significant customer concentration with large corporations like Microsoft and a startling $8.2 billion debt.
- Despite these potential drawbacks, smart investors may view the opportunity to invest in CoreWeave stock at a more attractive price in the coming years, based on historical data and the rapidly expanding AI sector.
