Technology giants as Microsoft (Msft 3.19%)) And Meta made folies on the accelerators of artificial intelligence (AI) and the construction of massive AI data centers, but also counted on the Coreweave start-up to meet the demand in calculating the IA IT capacity. Coreweave has built a specialized cloud computing platform focused mainly on the management of AI workloads, and almost all of its income comes from long-term contracts with large technological companies. At the end of 2024, the company operated more than 250,000 GPU in its data centers.
IA accelerator market manager Nvidia (Nvda 1.13%)) Invested in Coreweave in 2023, and now the AI Cloud platform plans to become public and will probably target an assessment of at least $ 35 billion. The company is expected to raise more than $ 3 billion compared to its first public call to public (IPO), which will help feed expansion. Revenues exploded more than 700% in 2024 to $ 1.9 billion, and Coreweave plowed $ 8.7 billion in capital expenditure while it widens its footprint to meet customer demand.
Coreweave is profitable on an operational basis, although payments of interest on his debt eat all his operating profit. Although operational profitability, foreseeable long -term contracts and the boom in IA computer capacity are positive for the company, investors planning to buy coreweave shares once it becomes public should work with caution.
Extreme concentration of customers
Coreweave generated 77% of its income from two customers in 2024, and one of them was Microsoft. The latter spends important for its own AI data centers, but also plans to develop its rental activity. CEO of Microsoft Satya Nadella Recently noted in an interview that the company planned to rent a lot of capacity in 2027 and 2028.
Even if Microsoft undertakes to rent in the future, counting on so few customers is a major risk.
A business model that may not last
Corewave long -term contracts with customers are to be taken or paying, which means that customers pay for a certain reserved capacity, whether they use this capacity. In addition, customers provide a significant early reimbursement, which helps finance the construction of infrastructure necessary to support the contract.
Since the cloud giants and other technological companies are currently rushing to obtain the Calculation capacity of the AI, Coreweave has enough lever to impose this type of arrangement. If the company is forced to move on to a payment model without Go without customer commitments, its income would become much less predictable.
What could cause such a change? An excess offer of IA’s computer capacity.
Such a scenario may seem unlikely today, but there is a reason why Microsoft plans to develop a rental activity in a few years. In this same interview with Nadella, the CEO of Microsoft noted that he expects the creeping expenses to expand the IT computer capacity throughout the industry drop the prices. In a world with too much IA computer capacity, you want to be rented, not having it.
In an excess assistance scenario, Coreweave customers are unlikely to be willing to engage in long -term contracts at fixed rates. Coreweave’s business model is made to measure for AI boom, but the company will face a calculation once the demand no longer exceeds the supply.
Be careful with Coreweave – and Nvidia too
Sales of AC accelerators by Nvidia remain strong, but cracks in the history of AI growth are beginning to appear. The reports that Microsoft has canceled some leases from the AI data center have arisen.
Although Microsoft has not declined its infrastructure spending plan of $ 80 billion for this year, this could change future plans to include more rental and less construction. This is exactly what the company would do if it was more worried about the excess offer of the value of its investments in AI.
If the prices on the calculation capacity of the AI come on due to the excess offer, the prices on the ACC Accelerators of NVIDIA would also be under pressure. Coreweave would not benefit from the drop in prices for AI accelerators because it would already deal with too much capacity. The only winners would be companies like Microsoft, by renting capacity and paying market rates.
Coreweave increased at an incredible pace in 2024. It is possible that the BOOM of the AI continues for another year, two more years, three other years, etc. But ultimately, the incredible sums of money thrown into AI’s computer capacity will push the supply superior to demand. Corewave’s business model works very well when there is a shortage, but it could collapse if there is an overabundance.
Should you buy the IPO Coreweave? All I can tell you is what I do, and I’m a no.
Randi Zuckerberg, former Director of Development of the Facebook and Sister of the CEO of Meta Platforms, Mark Zuckerberg, is a member of the board of directors of Motley Fool’s. Timothy Green Has no position in the actions mentioned. The Motley Fool has positions and recommends Meta, Microsoft and Nvidia platforms. The Motley Fool recommends the following options: Long January 2026 Calls $ 395 on Microsoft and Court January 2026 405 $ calls Microsoft. The Word’s madman has a Disclosure policy.