CoreWeave's recent IPO has seen a significant reduction in its scale, primarily due to investor concerns over the company's high client concentration risk and its deep ties with NVIDIA (NVDA, Financial) and Microsoft. Initially aiming for a $4 billion raise, CoreWeave has now set its IPO price at $40 per share, reducing the expected proceeds to approximately $1.5 billion—a substantial drop from the $2.7 billion announced during last week's roadshow.
Investors are wary of CoreWeave's business model, which heavily relies on NVIDIA, its sole GPU supplier, and a major client holding a 5.97% stake in the company. This intricate relationship raises questions about the sustainability of CoreWeave's business model. An anonymous analyst highlighted that NVIDIA accounts for 15% of CoreWeave's revenue, and the latter has borrowed billions to purchase GPUs from NVIDIA, suggesting a strategic move to create pricing leverage for NVIDIA outside major cloud service providers.
As an anchor investor in the IPO, NVIDIA has committed to supporting CoreWeave with a $250 million new order, likely an addition to the $320 million server time purchase agreed upon in April 2023.
Surveys indicate that over half of the respondents identified client concentration, mainly involving Microsoft and NVIDIA, as a major issue in CoreWeave's financials. Concerns have also been raised about CoreWeave's involvement in a "revenue roundtripping" structure with Microsoft, NVIDIA, and OpenAI, leading to distrust among investors regarding the company's actual revenue structure and sustainability.
Some investors are skeptical about CoreWeave's reliance on Microsoft's overflow capacity, especially as Microsoft plans to build its own data centers. Others are concerned about indirect investments in OpenAI, viewing it as a risky bet on Sam Altman's fundraising capabilities.
Additionally, 90% of surveyed investors believe CoreWeave lacks a sustainable competitive moat, with comments pointing out that their advantage is merely preferential access to GPUs, a barrier that might not hold in the long term.
