CoreWeave’s core problem

CoreWeave just hit the market this morning, but the biggest tech IPO since 2021 is already disappointing.

The “pure play” AI firm, which rents out access to Nvidia chips to tech giants like Microsoft, priced its IPO at $40 per share (implied valuation of $23 billion), started trading at $39, and ended the day back at $40. Both the amount CoreWeave raised in the IPO ($1.5 billion) and the valuation were far below what it was targeting.

An AI bellwether

CoreWeave has plenty of critics who point out company-specific challenges like high debt and aging hardware. But today’s IPO flop also highlights the lackluster market for public listings and the end of Wall Street hype about any company linked to the AI trade.

CoreWeave’s business model relies on Big Tech’s rabid demand for AI hardware to keep increasing, but its IPO coincides with increasing doubts about whether the data center game is oversaturated already. Just yesterday, TD Cowen sparked an AI selloff when analysts revealed that Microsoft was walking away from some of its data center leases due to “data center oversupply.”

But CoreWeave co-founder and chief development officer Brannin McBee insisted that business was booming in an interview with Brew Markets. “I think the business is priced exactly where it makes sense for us,” he said. “Ultimately, like there's sometimes a disconnect between what the financial markets see and what is happening in reality on the ground…what we see is just relentless, overwhelming demand out there.”

Whether or not CoreWeave recovers from today’s slump, one potential ripple effect is to chill what had been a warming IPO pipeline. Tech startups eyeing an IPO, such as Klarna and Stubhub, might be wary of the choppy public market waters.—LB