By Asa Fitch
CoreWeave's lackluster stock-market debut Friday offered further proof the artificial-intelligence trade is losing steam. It also said something about CoreWeave itself.
The company makes money by buying AI chips from Nvidia and then renting out access to them. That business boomed over the past two years: Startups and tech giants trying to outduel each other in AI turned to CoreWeave for additional computing power. Revenue climbed from $229 million in 2023 to $1.9 billion last year.
For better or worse, much of that growth has come from Microsoft, which accounted for 62% of revenue last year. But CoreWeave's role as an overflow supplier to Microsoft makes it especially vulnerable if the AI boom gets less boom-y.
CoreWeave has long-term contracts with Microsoft, but there's no assurance they will be renewed - and the tech giant could try to renegotiate them in harder times. CoreWeave chief Michael Intrator said in an interview that Microsoft wasn't going to back away from contracts, and he expected it would continue coming to CoreWeave for computing power even as it built up more of its own.
In addition to growing its data center footprint, Microsoft is developing its own custom AI chips and would save money by shifting toward using its own data centers for AI work.
"Operating data centers for these giants at a significant cost disadvantage is not sustainably profitable," New Street Research analyst Pierre Ferragu said in a note.
For now, CoreWeave benefits by being one of relatively few avenues for stock-market investors to put money into a fast-growing AI story. Throw in rising losses, a growing debt pile, and an unusually large cash-out by its founders ahead of the listing, however, and investors have some reason to pause-even if the broader AI boom doesn't fizzle.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.
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(END) Dow Jones Newswires
March 28, 2025 14:06 ET (18:06 GMT)
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