CoreWeave Downsizes IPO as Investor Appetite for AI Cools

Nvidia-backed CoreWeave has downsized its US IPO and priced its shares below the indicated range, Reuters reports. The move comes as investor enthusiasm for IPOs wanes, particularly in the AI sector.

CoreWeave, a leading provider of cloud services for AI workloads, will now sell 37.5 million shares at $40 each, representing a 23.5% reduction from its original plan and well below the initial price range of $47 to $55.

The downsized offering, which is expected to raise approximately $1.5 billion, values CoreWeave at roughly $23 billion on a fully diluted basis.

Nvidia, a major investor in CoreWeave, has committed to a $250 million anchor order at the offering price.

CoreWeave's roadshow, which began last week, encountered lukewarm reception from investors concerned about the company's long-term growth prospects, financial risks, and capital intensity.

"The business model doesn't appear fundamentally flawed, but this suggests investors are recalibrating AI infrastructure valuations," said Lukas Muehlbauer, research analyst at IPOX, to Reuters.

One key concern centers on CoreWeave's heavy reliance on Microsoft, whose evolving AI data center strategy could impact future demand for GPUs.

"While investors appear comfortable with the company’s high leverage since it has strong free cash flow, the risk of commitments not being fulfilled remains a worry," according to the report.

CoreWeave's capital-intensive business model also raises questions about its long-term sustainability, adding to broader market uncertainty.

The company, which has deployed over 250,000 Nvidia GPUs as of late 2024, has secured partnerships with major AI players, including OpenAI.

Despite these partnerships, CoreWeave's downsized IPO could signal waning investor confidence in the AI infrastructure market as the scaling of GPU assets for AI training slows down.

CoreWeave's stock market debut was closely watched as a barometer of the US IPO market's recovery and investor appetite for AI newcomers.

However, the number of US-listed equity capital markets deals, including IPOs and block trades, has declined in the first quarter of 2024, according to Dealogic data.

The AI boom has also sparked concerns about uneven data center spending, with investments concentrated among a handful of tech giants while others struggle to keep pace.

CoreWeave, which had approximately $8 billion in debt as of last year, leases its data centers and equipment, resulting in significant operating lease liabilities.

The company's offering prospectus indicated that approximately $1 billion of the IPO proceeds would be used to pay down debt, but CoreWeave has also stated its intention to continue borrowing.

CoreWeave, which has yet to turn a profit, has secured partnerships with major AI players, including OpenAI, signing an $11.9 billion infrastructure deal with the ChatGPT maker earlier this month.

Morgan Stanley, JPMorgan Chase, and Goldman Sachs are the lead underwriters of the IPO.