Cloud cover

Of every $100 that CoreWeave took in last year, $62 came from Microsoft.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} That is the sort of figure that, in a loan application, prompts a second meeting. In a share offering it prompted a discount. On 27 March the AI-cloud provider priced its initial public offering at $40 a share,^{1CoreWeaveCoreWeave Announces Pricing of Initial Public Offering27 Mar 2025} well below the $47 to $55 range it had set out a week earlier.^{3SEC EDGARCoreWeave, Inc. registration statement amendment (Form S-1/A)20 Mar 2025}

The company sold 36.59m shares itself and existing holders sold 910,000 more,^{1CoreWeaveCoreWeave Announces Pricing of Initial Public Offering27 Mar 2025} which raises about $1.5bn for CoreWeave before fees. The ticker is CRWV;^{4CoreWeaveCoreWeave Files Registration Statement for Proposed Initial Public Offering3 Mar 2025} the more telling abbreviation is “GPU”. CoreWeave buys Nvidia’s graphics chips by the tens of thousands and rents them, with the data centres and software around them, to anyone who wants to train or run an AI model. At the end of 2024 it had more than 250,000 of them in 32 data centres.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025}

The business is growing as fast as anything in public markets. Revenue was $1.9bn in 2024, against $229m in 2023.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} Adjusted EBITDA, the measure companies prefer when the other measures are unkind, was $1.2bn, a margin of 64%.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} We think the demand is real. Contracted but unrecognised revenue stood at $15.1bn, up 53% in a year, and Microsoft is expected to be under half of future committed contract revenue.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} A specialist that can install the newest chips quickly has shown it can win work from the giants.

The trouble starts below the EBITDA line. The chips cost money: property and equipment stood at $11.9bn, up from $3.5bn a year earlier.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} Depreciation took $863m and net interest another $361m, leaving a net loss of $863m, a coincidence of figures nobody at CoreWeave will have enjoyed.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} Principal payments on debt of about $8.0bn come to $2.5bn in 2025 alone.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025}

Two assumptions hold the structure up. The first is that customers keep signing multi-year contracts at today’s rates. The second is that the chips will earn their keep for as long as the accounts say. Since January 2023 CoreWeave has depreciated its computing equipment over six years rather than five,^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} and a majority of its fleet is already the older Hopper design.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} A landlord whose buildings may need rebuilding every few years needs either high rents or short memories.

Then there is Nvidia, which is at once supplier, shareholder and customer. Before the offering it owned 5.96% of CoreWeave’s stock,^{3SEC EDGARCoreWeave, Inc. registration statement amendment (Form S-1/A)20 Mar 2025} and by the end of 2024 it had paid CoreWeave about $320m for services of its own.^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} None of this is improper, and all of it is disclosed. But a supplier that lends its customer a good name, and then buys time from it, is helping to create the demand it hopes to measure. The founders, for their part, will hold about 80% of the votes through shares carrying ten apiece,^{2SEC EDGARCoreWeave, Inc. prospectus (Form 424B4)27 Mar 2025} so outside buyers are being asked to fund the capex without much say in it.

The counter-argument is that $40 is a bargain. Buyers get the fastest-growing infrastructure firm of the AI boom at a price below the range it chose itself. If demand for compute keeps compounding, that is a fair point. Our view is narrower. The discount is the market’s first answer, about 15% under the bottom of the range, and it is not obviously wrong. CoreWeave deserves to be a public company, and public investors deserve the chance to price its debts as well as its dreams.

A cloud, after all, is only as good as the weather under it.