CoreWeave (NASDAQ: CRWV) becomes a bellwether for commoditized AI
CoreWeave (NASDAQ: CRWV)—the AI “hyperscaler” that allows application developers to rent cloud-based GPU capacity—had been one of the most anticipated tech IPOs in recent years only to bomb in its first two days of trading last month and sink 10% below the offering price. But shares then soared a day later, and they’re still up nearly 18% despite a broader market selloff over the past week.
IPOs are risky business. Nearly 31% of them fall in day one trading, according to Nasdaq, and after three years, a full two-thirds underperform the broader market with just a select few winners doubling or even tripling in price. The volatility around CoreWeave’s debut shows that the market is still figuring out how to price one of the few true “pure plays” of the AI boom.
“Early stock valuations are mostly based on future cash flows,” Nasdaq Chief Economist Phil Mackintosh wrote, adding that earnings don’t seem to be as important, at least initially. “Companies with greater sales on the date of their IPO perform better than those with smaller sales and less established market penetration.”
And that’s exactly where CoreWeave doesn’t disappoint. The company saw revenue rise an explosive 737% last year to $1.9 billion, and a majority of sales are resulting from “multi-year committed contracts” from big-name clients like Microsoft (NASDAQ: MSFT). Further pointing toward the predictability that investors love are CoreWeave’s 32 data centers running more than 250,000 GPUs, and the guarantees it has for additional electricity supply that will allow it to expand without worrying about finding more generation capacity—a key bottleneck emerging in the industry.
GPU shelf life may become a liability
That’s not to say there aren’t concerns, and while the company’s performance will ultimately rise or fall with the broader appetite for all things AI, it’s also about to test another unknown: the shelf-life of older generation GPUs. Most of CoreWeave’s current installed base consists of Hopper chips produced by Nvidia (NASDAQ: NVDA) that could soon be overshadowed by its newer Blackwell generation. The chipmaker’s CEO Jensen Huang stoked those fears earlier this year when he seemingly joked that “when Blackwell starts shipping in volume, you couldn’t give Hoppers away.” CoreWeave will have a big problem if demand for all its Hopper chips falls before it can pay back the billions it borrowed to purchase them all.
But it might not be a bad thing if Hopper chips are about to become as old as yesterday’s news, and there’s reason to believe that CoreWeave will be able to keep monetizing them for years to come. First, there will be stiff competition for Blackwell supply that will throttle broader adoption, and that should keep the Hoppers hopping for a while.
The company, meanwhile, could also be buoyed by a phenomenon that’s widely known when it comes to automobile traffic: widening highways doesn’t ease congestion because drivers end up responding by taking more trips. More roads simply means more traffic—with drivers going further and faster—and more data centers and more chips could just mean more uses for AI.
CoreWeave CEO Michael Intrator hinted at this future in a recent interview with Fortune that came as some had hastily labeled the IPO a “disaster.” “There’s a divergence between what the capital markets and what the media is thinking, and what I am feeling down in the trenches,” he said. “What I am feeling is relentless demand.”
Jevons Paradox
An economics theory known as the Jevons Paradox—which posits that greater efficiency and falling prices lead to increasing demand—could already be proving his hunch to be correct. OpenAI’s recently updated image generation capacity that sent everyone on social media rushing to make and post images of themselves in the style of famed Japanese animation giant Studio Ghibli is the latest case in point.
“Working as fast as we can to really get stuff humming; if anyone has GPU capacity in 100k chunks we can get asap please call!” OpenAI CEO Sam Altman wrote on X last week, adding that demand for the service had been “insane.” “The ChatGPT launch 26 months ago was one of the craziest viral moments I’d ever seen, and we added one million users in five days. We added one million users in the last hour.”
Indeed, the demand for human vanity knows no bounds, and that’s great news for CoreWeave. As more cutting-edge AI applications shift to Blackwell, the market for Hopper chips could still grow as they shoulder the load for less complex tasks sought by more people. The ongoing rollout of AI agents that can work autonomously will further test this theory.
CoreWeave investors are betting that the market for tomorrow’s obsolete and commoditized AI could be huge, with plenty of cash flow to go around. More AI capacity may result in more AI users, and some of the things they do with it might actually be useful.
