CoreWeave Inc.’s stock has staged a staggering rally of nearly 200% since the artificial-intelligence cloud company went public in March. That’s been especially good news for corporate insiders and early investors, who got shares at low prices and are sitting on nice paper gains.
Soon they’ll have the option to cash in, thanks to the expiration of the company’s post-IPO lock-up period that’s due to take place after Thursday’s closing bell. In a company’s early months on the public markets, insiders are restricted from unloading stock, but CoreWeave’s IPO materials indicate that the lockup expires after the market close on the second day after the company’s second earnings report as a public company. CoreWeave posted earnings on Tuesday afternoon.
What does that mean for regular investors? There’s the potential for some selling pressure, with CoreWeave disclosing in its IPO prospectus that about 84% of shares were held by directors, executives, selling shareholders and some other holders who were subject to lockup restrictions. But it’s also worth noting that the lockup expiration date won’t be a surprise to Wall Street.
Perhaps that’s why a look at U.S.-listed IPOs from the past five years shows that stocks end essentially flat on average in their first day of trading after the lockup expires.
But over a one-month span, the average move is a 2.4% decline, according to Dow Jones Market Data, whereas the S&P 500 index averages a gain of 1.3%, based on rolling one-month performance over the same span.
For bigger companies, the one-month move is less dramatic, averaging out to a 0.5% decline in the first month following a lockup expiration when focusing just on companies with market capitalizations upwards of $1 billion at the time of the deal. CoreWeave’s market cap at the time of the IPO was almost $14 billion and it now stands near $57 billion.
CoreWeave’s stock has made some dramatic swings since the company went public, volatility that MoffettNathanson’s Nick Del Deo previously attributed in part to the stock’s thin float. Earlier this week, he added that he saw some potential positives to the lockup expiration.
“Over time, this should help to bolster its float and mitigate some of the technical dynamics that have affected the stock’s trading behavior since the IPO,” he wrote. “However, it’s impossible to judge the degree to which insiders may sell, and the company’s ownership is concentrated in their hands.”
He remained cautious on CoreWeave’s stock for other reasons, noting that the company “is growing at incredible rates and investing mind-boggling sums to support that growth” but could face heightened competition going forward in light of the large perceived opportunity in artificial intelligence. Del Deo has a neutral rating and $56 target price on CoreWeave’s stock, with that target about half of where shares trade currently.
