After Microsoft once again took a hit, this stock will become the "AI computing power benchmark" when it goes public on Friday

CoreWeave seeks IPO, is it a gamble on the continued explosion of AI computing power demand?

On Wednesday, TD Cowen reported that Microsoft has abandoned new data center projects in the U.S. and Europe, involving a total power of hundreds of megawatts. This news once again heightened bearish sentiment in the U.S. stock market, with overnight chip stocks extending their declines, and all seven tech giants turning down, with Nvidia plunging by as much as 6%.

The timing of the TD Cowen report is considered "bad," as just a few days earlier, rumors had emerged that CoreWeave was eager to complete its large-scale IPO.

According to media reports, AI cloud computing service provider CoreWeave announced that it will price its IPO on Thursday evening and begin trading on the Nasdaq on Friday, potentially raising up to $3 billion for the company after going public.

Microsoft's withdrawal from large data center projects has raised concerns about an "oversupply of AI computing clusters," as Microsoft and Nvidia are CoreWeave's main customers, and the market is closely watching the company's subsequent listing performance.

Some believe that CoreWeave's pursuit of an IPO is aimed at covering up a fact: once CoreWeave's largest customer, Microsoft recently withdrew part of its $12 billion computing power cooperation commitment with CoreWeave.

Meanwhile, as investors' confidence in the exponential growth of AI has somewhat wavered, the market may become cautious in the face of CoreWeave's listing.

Rapid growth, but burdened with huge costs and debts

With the support of major clients like Nvidia and Microsoft, CoreWeave has achieved astonishing growth in recent years.

Data shows that CoreWeave's revenue grew more than eightfold in 2024, reaching $1.9 billion. The company also held $15.1 billion in "remaining performance obligations" at the end of last year, stating that just over half of this will be recognized as revenue by the end of 2026.

Additionally, earlier this month, CoreWeave announced a “master service agreement” with OpenAI, valued at $11.9 billion, with a contract term lasting until October 2030.

However, the cost required to support this growth is not cheap. CoreWeave consumed nearly $6 billion in cash last year due to significant capital expenditures for building AI infrastructure, compared to $1.1 billion the previous year

What is more concerning is that the company's balance sheet carries nearly $8 billion in total debt, primarily consisting of debts accumulated to support customer AI workloads with NVIDIA graphics processing units.

In the risk disclosure section of the IPO application documents, CoreWeave also acknowledged significant deficiencies in its internal controls over financial reporting, including inadequate application controls in IT systems supporting financial reporting and a lack of qualified personnel in relevant positions.

"NVIDIA's Favorite Child"? Not Enough to Alleviate Competitive Pressure

Headquartered in New Jersey, CoreWeave was founded in 2017 as a cryptocurrency mining company and later ventured into the cloud computing services sector.

It is worth mentioning that NVIDIA's favoritism towards CoreWeave has reached a level of "treating it as its own"—after receiving investment from NVIDIA, CoreWeave became a direct cloud computing power supplier for NVIDIA, with even Microsoft ordering cloud computing power from them.

As NVIDIA's "favorite child," CoreWeave effectively helps it compete for the supply of cutting-edge GPUs against larger companies, but this does not exempt CoreWeave from keeping pace with these competitors in an ever-expanding spending race.

According to media data, Microsoft, Amazon, Meta, and Google's parent company Alphabet will collectively invest nearly $340 billion in capital expenditures this year—a 39% increase from 2024.

And although CoreWeave's capital expenditures last year reached more than four times its revenue, it still only represents a small fraction of the spending by those large companies. The funds raised in the IPO will not significantly narrow this gap, especially since the company has already reserved $1 billion for debt repayment