Soundtrack: EL-P (ft. Aesop Rock) – Run The Numbers
In my years writing this newsletter I have come across few companies as rotten as CoreWeave — an “AI cloud provider” that sells GPU compute to AI companies looking to run or train their models.
CoreWeave had intended to go public last week, with an initial valuation of $35bn. While it’s hardly a recognizable name — like, say, OpenAI, or Microsoft, or Nvidia — this company is worth observing, if not for the fact that it’s arguably the first major IPO that we’ve seen from the current generative AI hype bubble, and undoubtedly the biggest. Moreover, it’s a company that deals in the infrastructure aspect of AI, where one would naturally assume is where all the money really is — putting up the servers for hyperscalers to run their hallucination-prone, unprofitable models.
You’d assume that such a company would be a thriving, healthy business. And yet, a cursory glance at its financial disclosure documents reveals a business that’s precarious at best, and, in my most uncharitable opinion, utterly rancid. If this company was in any other industry, it would be seen as such. Except, it’s one of the standard bearers of the generative AI boom, and so, it exists within its own reality distortion field.
Regardless, CoreWeave’s IPO plans appear to have been delayed, and it’s unclear when it’ll eventually make its debut on the public markets. I assume the reasons for the delay are as follows.
First, (and we’ll talk about this later), on March 10, OpenAI announced the completion of a deal with Coreweave valued at $11.9bn that would see it procure AI compute from the company, while also taking a $350m stake in the business. This arrangement has, undoubtedly altered some of the calculus behind things like valuations, and so on.
Additionally, Coreweave has now released an amended version of its S-1 — the document that all companies must file before going public, and that acts as a prospectus for would-be investors, revealing the strengths and weaknesses of the business. The new partnership with OpenAI does complicate some things, including when it comes to risk (as we’ll discuss later), and so it naturally makes sense that CoreWeave would have to release an updated version of its prospectus.
I’ve spent far too long reading CoreWeave’s S-1. For the uninitiated, S-1 documents are, as a matter of rule, often brutal. The SEC — and federal law — demands total, frank honesty. It’s a kind of hazing for would-be public companies, where they reveal all their dirty secrets to anyone with a web browser, thereby ensuring those who invest in the company on the first day are able to make informed decisions.
The revelations contained in S-1 documents are, quite often, damning, as we saw in the case of WeWork. It laid bare the company’s mounting losses, its debt burden, and its insane cash burn, and raised questions about the sustainability of a company that had signed hundreds of expensive long-term leases in the pursuit of growth, despite having never made a profit. Within a matter of weeks, WeWork cancelled the IPO and its CEO and founder, Adam Neumann, had left the company.
Sidenote: WeWork, incidentally, would later go public by merging with a SPAC (special purpose acquisition company, which is essentially a shell company that’s already listed on the open markets). SPACs exist for one reason, and that’s to allow shitty companies to go public and raise money from investors without having to go through the scrutiny of a full IPO. At least, that was the case prior to 2024, when the SEC began demanding increased disclosures from companies that sought to merge with SPACs and enter the public markets via the back door.
Unsurprisingly, many of the companies that used SPACs (like failed EV makers Fisker and Lordstown Motors, and Virgin Orbit) ultimately ended up in liquidation, or winding up petitioning a court for Chapter 11 bankruptcy protection. WeWork, for what it’s worth, filed for Chapter 11 in 2023, exiting bankruptcy the following year, albeit as a much smaller company, and one that was no longer listed on the vaunted New York Stock Exchange.
CoreWeave’s S-1 tells the tale of a company that appears to be built for collapse, with over 60% of its revenue dependent on one customer, Microsoft. In early March, the Financial Times reported that Microsoft has dropped “some services” with CoreWeave, citing delivery issues and delays, although Coreweave would later deny this.
The timing, however, is suspicious. It came a mere week after TD Cowen’s explosive report that claimed Microsoft had walked away from over a gigawatt of data center operations, and likely much, much more. For context, a gigawatt is about the same as the cumulative data center capacity in London or Tokyo — each city being the largest data center market in their respective regions.
CoreWeave is burdened by $8 billion of debt (with its most recent debt raise bringing in $7.6bn, although that line of credit has not been fully tapped) that it may not be able to service. This figure does not include other commitments which are listed on the balance sheet as liabilities, like its various lease agreements for hardware and data center facilities.
Worse, despite making $1.9 billion in revenue during the 2024 financial year, the company lost $863 million in 2024, with its entire future riding on “explosive growth” that may not materialize, and even if it does, would require CoreWeave to spend unfathomable amounts of money on the necessary capex investments.
CoreWeave is, on many levels, indicative of the larger success (or failure) of the so-called AI revolution. The company’s core business involves selling the unavoidable fuel for generative AI — access to the latest (and most powerful) GPUs and the infrastructure to run them, a result of its cozy relationship with (and investment from) NVIDIA, which has given CoreWeave priority access to its chips. As CoreWeave’s own S-1 notes, it was “the first cloud provider to make NVIDIA GB200 NVL72-based instances generally available,” and “among the first cloud providers to deploy high-performance infrastructure with NVIDIA H100, H200, and GH200.”
CoreWeave owns over 250,000 NVIDIA GPUs across 32 data centers, supported by more than 260MW of active power, making it competitive with many of the familiar hyperscalers I’ve mentioned in previous newsletters, despite being a company few have ever heard of. By comparison, Microsoft bought 485,000 GPUs in 2024 and aimed to have as many as 1.8 million GPUs by the end of that year, though it’s unclear how many it has. Meta likely has somewhere in the region of 600,000 GPUs, and according to The Information’s AI Data Center Database, Amazon has hundreds of thousands of its own.
In short, CoreWeave’s position is one that at the very least competes with the hyperscalers, and is both a fascinating and disturbing window into the actual money that these companies do (or don’t) make, and the answer is “not very much at all.”
Furthermore, CoreWeave’s underlying financials are so dramatically unstable that it’s unclear how this company will last the next six months. As I’ll get into, CoreWeave’s founders are finance guys that have already cashed out nearly $500 million before the IPO, but did so in a way that means that despite only retaining 30% of the company’s ownership, they retain 82% of the voting power, allowing them to steer a leaky, poorly-built ship in whatever direction they see fit, even if doing so might send CoreWeave into the abyss.
If this sounds familiar, it’s pretty much the same arrangement that Mark Zuckerberg has with Facebook. Despite only holding a small percentage of the company’s equity (around 13%), he holds the majority of voting shares, as well as the role of chairman of Facebook’s board, ensuring his position as CEO can never be challenged, regardless of any pressure from shareholders.
CoreWeave is a company that is continually hungry for more capital, and its S-1 cites potential difficulties in obtaining new cash as a potential risk factor. It intends to raise around $4 billion at IPO, which presumably will go towards servicing its debt and fuelling future expansion, as well as funding the day-to-day operations of the business. However, as I’ll walk through in this newsletter, that will not be enough for this company to survive.
Sidenote: Remember when I said that companies have to lay out all their dirty laundry in the S-1, including potential risk factors? One of the factors cited is the questionable future of AI, and the failure of its customers “to support Al use cases in their systems” when those AI use cases are deployed on CoreWeave’s iron.
Again, Microsoft is Coreweave’s biggest customer. Essentially, it’s saying that Microsoft might not actually do a good job of getting people to use Copilot, or the OpenAI models it licenses through its own ecosystem, and that would, in turn, hurt CoreWeave.
The same document also mentions the usual stuff: the reputational harm that generative AI poses to its creators and those linked to them, regulatory scrutiny, and the uncertain trajectory of AI and its commercialization.
And, while we’re on the subject of risk factors, a few other things caught my eye. CoreWeave cited “material weaknesses in [its] internal control over financial reporting” as a risk factor. As a public company, CoreWeave will be forced to prepare and publish regular (and accurate) financial reports. While building the S-1, CoreWeave said it “identified material weaknesses in our internal control over financial reporting” which means that “there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis”
The good news: It’ll be able to fix them. The bad news? Doing so likely won’t be completed into 2026, and it’ll be “time consuming and costly.”
CoreWeave says that “negative publicity” could harm the company’s prospects, “regardless of whether the negative publicity is true.” This is a fairly generic statement that could apply to any business, and you’ll see similar generic warnings in most S-1 prospectuses, as they’re supposed to be a comprehensive representation of the risks that business faces. One line, however, did stand out. “Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past.” Interesting!
Anyway, I have a great deal of problems with this company, but let’s start somewhere simple.
Paging Doctor Zitron…
Number One — CoreWeave Does Not Have A Stable Business, And Is A Bad Omen For Generative AI Writ Large
To properly understand CoreWeave, we have to look at its origin story. Founded in 2017, CoreWeave was previously known as Atlantic Crypto, a cryptocurrency mining operation started by three guys that worked at a natural gas fund. When the crypto markets crashed in 2019, they renamed the company and bought up tens of thousands of GPUs, which CoreWeave offered to the (at the time) much smaller group of companies that used them for things like 3D modelling and data analytics. This was a much smaller business, and far less capital-intensive, with CoreWeave making $12m in 2022 with losses of $31m.
When ChatGPT’s launch in late 2022 activated the management consultant sleeper cells that decide what the tech industry’s next hypergrowth fixation is going to be, Coreweave pivoted again, this time towards providing the computational muscle for generative AI. CoreWeave became what WIRED would call “the Multibillion-dollar Backbone of the AI boom,” a comment that would suggest that CoreWeave was far more successful than it really is.
Nevertheless, CoreWeave has — through its relationship with NVIDIA, which holds a reported 5% stake in the company — an extremely large amount of GPUs, and it makes money by renting them out on a per-GPU-per-hour basis. Its competition includes companies like Lambda, as well as hyperscalers like Amazon, Google and — believe it or not — Microsoft, all of whom sell the same services.
What’s important to recognize about CoreWeave’s revenue is that, despite whatever WIRED might have said, the majority of its revenue does not come from “being the backbone of the AI boom,” but as auxiliary cloud compute provider for hyperscalers. When a hyperscaler needs more capacity than it actually owns, it’ll turn to a company like CoreWeave to pick up the slack, because building a new datacenter is — as noted in the previous newsletter — something that can take between three and six years to complete.
CoreWeave’s customers include AI startup Cohere, Meta, NVIDIA, IBM, and Microsoft, the latter of which is its largest customer, accounting for 62% of all revenue during the 2024 financial year. It’s worth noting the speed in which CoreWeave became highly reliant on a single customer to exist. By contrast, in 2022 its largest customer accounted for 16% of its revenue, suggesting a far more diversified — and healthy — revenue base.
Although CoreWeave says its reliance on Microsoft will decrease to 50% of revenue as (if?) OpenAI starts shifting workloads to its servers, the current reality remains unchanged. Broadly speaking, CoreWeave is dependent on a few big-spending “whales” to stay afloat.
Per the S-1, 77% of CoreWeave’s revenue comes from two of its customers, the latter of which remains unnamed, and is only referred to as “Customer C” in the document. However, based on reporting from The Information, it’s reasonable to assume it’s NVIDIA, which agreed in 2023 to spend $1.3 billion over four years “to rent its own chips from CoreWeave.”
Once you remove these two big contracts, CoreWeave only made $440 million in 2024.
These numbers deeply concern me, and I’ll explain why.
- CoreWeave is, other than the hyperscalers, one of if not the largest holder of GPUs in the cloud space.
- CoreWeave sells, other than the GPUs themselves, the most “valuable” service in generative AI — compute.
- As a result, CoreWeave — as an independent company with the scale of a hyperscaler — is indicative of demand for generative AI services.
- CoreWeave’s revenue, outside of its large contracts, amounts to about $440m, or $1.9 billion with these contracts.
- As a reminder, CoreWeave lost $863 million servicing these contracts.
- These numbers suggest one (or all) of the following:
- CoreWeave’s business model does not make enough revenue to cover its costs.
- Outside of auxiliary capacity for hyperscalers, CoreWeave does not have a fundamentally sound or scalable business model.
- There is a fundamental lack of demand for compute for generative AI.
In short, CoreWeave is existentially tied to the idea that generative AI will become both a massive, revenue-generating industry and one that’s incredibly compute-intensive. CoreWeave’s future is one that requires an industry that has yet to show any meaningful product-market fit to grow so significantly that compute companies turn into oil companies at a time when Microsoft — the largest provider of GPU compute and the hyperscaler with the highest amount of proposed capex spending — has pulled back fro
