So far this year, the Nasdaq Composite dropped by about 8%. Broad sell-offs in mega-cap artificial intelligence (AI) stocks are some of the biggest drags on the market.
Despite these murky conditions, one AI unicorn has its eyes set on an initial public offering (IPO). CoreWeave, a start-up backed by Nvidia, recently filed its S-1, showing the company and current shareholders are marketing the shares from $47 to $55. With 48.7 million shares in potentially in play, the IPO is valued at roughly $2.7 billion.
While CoreWeave’s public debut has been highly anticipated, I’m wary about investing in the company right now. Let’s explore CoreWeave’s business, the current state of the company’s financial profile, and why a different Nvidia-backed AI data center stock may be the better buy.
CoreWeave specializes in renting out high-performance chipsets known as graphics processing units (GPUs). GPUs are an integral component for training generative AI applications, and are primarily developed by the likes of Nvidia, Advanced Micro Devices, and Broadcom. In addition, cloud hyperscalers Microsoft, Amazon, and Alphabet are exploring their own custom silicon solutions, as is social media and metaverse leader Meta Platforms. Per CoreWeave’s S-1 filing, many of these businesses leverage the company’s compute rental services.
While all of this looks impressive, some of the finer details packed deep in CoreWeave’s filings have me concerned. For example, in 2024 CoreWeave posted revenue of $1.9 billion — an increase of 736% from 2023. But that growth came at a cost. Last year, CoreWeave’s net loss widened to $863 million — materially higher than the company’s loss of $593 million in 2023.
To be fair, many start-ups invest aggressively in growth for years — choosing to double down on product development and marketing at the expense of profitability. While I’d like to be lenient as it pertains to CoreWeave’s mounting losses, there’s a more pernicious trend that spooks me.
During 2022 and 2023, CoreWeave derived 41% and 73% of its revenue from just three customers. Then in 2024, 77% of the company’s revenue came from just two customers — with Microsoft accounting for 62% of sales (up from 35% in 2023).
So, CoreWeave has high degrees of customer concentration — and it’s actually rising. To me, CoreWeave is a high-cash-burn business relying on a select number of customers for the majority of its growth. All in all, I think the business is quite risky.
