Representing top tech stocks, the Nasdaq 100 (NDX) index is down 8% since the beginning of the year, trending even lower to September 2024 level. The main culprit is the uncertainty surrounding President Trump’s tariffs on imports, covering a wide range of tech products from semiconductors to automotive components.
It is also uncertain how Elon Musk’s DOGE revelations will affect massive government and NGO-adjacent employment, which appears superfluous. These employees may not only lose jobs but also lock-in profits, exacerbating market volatility.
These compounding factors could induce recession, with Polymarket odds for one in 2025 hovering around 38%. But what does that mean for the latest addition to Nasdaq, the AI cloud computing stock CoreWeave Inc (NASDAQ:CRWV)?
Is CoreWeave’s IPO Fairly Priced?
Having been listed on Nasdaq since Friday, CRWV stock opened at $39.67 and closed slightly higher at $40 per share. When it comes to the tech sector, this is not surprising. Even one year after the dot-com bubble burst, in 2001, the average first-day return for IPOs yielded 14.15% gains.
At press time on Monday, CRWV is priced at $37.48, holding around its lowest point on Friday, of $37.46 per share. Despite aiming for a $2.5 billion funding, which would’ve set CRWV price within the $47 – $55 range, CoreWeave CEO Michael Intrator settled for around $40. On Friday’s Squawk Box, Intrator attributed the valuation downsize to “a lot of headwinds in the macro”.
Nonetheless, CoreWeave’s publicly traded launch has been successful. After all, the annual IPO market suffered a steep decline since 2021, having dropped from 1035 to 225 IPOs in 2024. This makes CRWV launch one of the most valued tech offerings since 2021.
But by the end of the year, should investors expect CRWV stock to go substantially above $40 or lower?
CoreWeave’s Core Demand
Harnessing compute clusters across 250,000 Nvidia’s GPUs, CoreWeave counts on ever-escalating AI demand for compute power. This is not difficult to imagine, given that even White House joined the Studio Ghibli mania that engulfed the internet this month.
For comparison, Microsoft (NASDAQ:MSFT) accrued 485,000 GPUs in 2024 for its Azure cloud and to power its 365 Copilot AI.
Such a phenomenon clearly points to AI content generation becoming commonplace across all human activity. Although the efficiency of Chinese DeepSeek AI somewhat dampened the expectations for compute power demand, both image and video generation are far more taxing.
Indeed, just a month after DeepSeek’s entry, the spending on AI from Big Tech hyperscalers showed no signs of stopping. It is with this wider picture in mind that CoreWeave accumulated $12.9 billion in debt.
The company used that debt to run/lease 32 AI data centers worth around 1.3GW of compute power. To compete against Big Tech players such as Amazon (NASDAQ:AMZN) (AWS), Microsoft (Azure), and Google (NASDAQ:GOOGL) (GCP), CoreWeave focuses on optimization for AI workloads. This ranges from liquid cooling for high-density server racks to network bandwidth interconnectivity.
Just like with Bitcoin mining companies, CoreWeave leverages colocation, as its shared infrastructure drastically increases cost-effectiveness and scalability.
CoreWeave’s Financials
At present market cap of $17.3 billion, CoreWeave is yet to enter profitability owing to investments in rapid data center expansion. In 2024, the company generated $1.9 billion revenue with a net loss of $863.4 million.
Although this infrastructure-as-a-service business model is yet to yield money, it bears remembering that CoreWeave revenue jumped 737% from 2023 to 2024. Even better, the company grew over 1300% from 2022’s $15.8 million revenue.
In other words, CoreWeave justifies debt accumulation to expand, based on future AI compute demand needs. In the S1 earnings filed to the SEC, as of December 31st, 2024, the company reported $1.36 billion in cash reserves and $15.1 billion in remaining performance obligations (RPO).
This is the amount of contracted revenue that CoreWeave has not yet recognized as earned. To put it differently, it represents future revenue from AI demand contracts. Given CoreWeave’s massive debt load, to surface into sustainable profitability, the company counts on the “massive and unprecedented growth of AI” to continue.
The Bottom Line
Ultimately, if AI hype proves to be a bubble, CoreWeave will be one of the first ones to burst. However, there are good reasons to believe AI doesn’t constitute a bubble but a new layer of computation that spans both work loads and daily life.
It could be said that AI image generation alone already makes the case for successful commercialization of AI. Nonetheless, CoreWeave warned of the uncertainty in this emerging sector.
“The broader adoption, use, and commercialization of AI technology, and the continued rapid pace of developments in the AI field, are inherently uncertain.”
Yet, judging by AI improvements in just two short years, CoreWeave’s vulnerable debt commitments appear to be justified. During the current macro uncertainty, CRWV shareholders should expect the average price target at $36 per share. But if investors are convinced of AI’s successful future, this should be viewed as the optimal entry price point.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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