Is CoreWeave’s $2.7 Billion Valuation Too Low or Just Right?

“We assumed this was going to happen. We were well positioned for this transition.”

That was how Michael Intrator, CEO of CoreWeave, described the company’s foresight in shifting from crypto mining to artificial intelligence. It was 2023, and CoreWeave had just found itself at the center of an AI boom triggered by OpenAI’s ChatGPT. Demand for computing power had exploded, and the company, once a struggling crypto venture, was suddenly sitting on one of the most valuable resources in tech: high-performance GPUs.

Now, CoreWeave is gearing up to find out if it’s once again in the right place at the right time, this time with Wall Street’s watchful eye. The company’s upcoming IPO, which aims to raise up to $2.7 billion, will serve as a test of how investors feel about AI infrastructure, especially in a climate where the ups and downs of tech stocks have dampened enthusiasm.

CoreWeave’s origins trace back to 2016, when three New York commodities traders, Michael Intrator, Brian Venturo, and Brannin McBee began experimenting with Bitcoin. Initially, they used the cryptocurrency for betting on pool games and fantasy football, but their interest deepened as they saw the potential in mining digital assets. They ordered Nvidia GPUs, stockpiled hardware in garages and warehouses, and, by 2017, launched Atlantic Crypto to mine cryptocurrencies.

That business model was short-lived. When crypto prices collapsed in 2019, the trio realized they needed to pivot. Renaming their venture CoreWeave, they began buying GPUs from distressed miners, betting that AI would soon demand massive amounts of computing power. That gamble paid off in 2022, when OpenAI’s ChatGPT ignited an AI gold rush, sending demand for GPUs soaring. CoreWeave had positioned itself at exactly the right moment.

CoreWeave has seen its growth closely linked to major players in the AI space, especially Microsoft and Nvidia. However, recent events indicate that the company’s future may not be entirely in its hands. Microsoft, which had the chance to buy nearly $12 billion worth of extra data center capacity from CoreWeave, chose not to go through with it. Even though Microsoft has reiterated its $80 billion commitment to AI, opting out of additional CoreWeave capacity suggests they may be unsure about this.

However, CoreWeave quickly found another buyer. OpenAI, one of its largest customers, stepped in and secured the contract. The catch? OpenAI itself is heavily backed by Microsoft, meaning that CoreWeave’s business remains financially linked to the same ecosystem. This shows a broader problem which is an AI insular economy where AI infrastructure spending is still largely contained within a handful of major players. Until AI adoption expands beyond the likes of Microsoft, OpenAI, and Nvidia, the industry remains dependent on a few dominant forces.

CoreWeave is seeking to raise up to $2.7 billion in its IPO, a figure lower than the $4 billion valuation Bloomberg reported last month. The company initially hoped to raise at least $3 billion, possibly even $4 billion but given recent stock market volatility, it has adjusted its expectations.

The broader AI industry is still operating in a financial loop where capital flows between the same key players. Nvidia, the dominant supplier of AI chips, backs CoreWeave. Microsoft, a major AI investor, funds OpenAI, which then turns around and pays CoreWeave for cloud computing. This kind of circular economy has fueled AI’s explosive growth, but it also raises questions about sustainability. At some point, AI will need broader adoption across industries to justify the continued investment.

Despite CoreWeave’s impressive 747% revenue growth in 2024, not everyone is convinced that it’s the next AI success story. Jeffrey Emanuel, a crypto executive whose analysis of Chinese AI startup DeepSeek earlier this year helped wipe $600 billion off Nvidia’s market capitalization in a single day, is now turning his scrutiny to CoreWeave.

Jeffrey Emanuel argues that CoreWeave’s business model resembles that of WeWork, the office-sharing startup that soared to a $47 billion valuation before collapsing under the weight of debt and unrealistic growth projections. CoreWeave, like WeWork, has aggressively expanded its infrastructure, relying on a continuous stream of demand to justify its investments. If AI spending slows or companies become more selective in their compute needs, CoreWeave could find itself overextended.

The timing of CoreWeave’s IPO is critical not just for the company but for other firms considering going public. Klarna, the buy-now-pay-later giant that has integrated AI into its business, is reportedly eyeing an IPO in April. Investors are watching to see how CoreWeave fares before making their own moves. If CoreWeave succeeds, it could open the floodgates for other AI and fintech firms. If it struggles, it might reinforce concerns that the IPO window isn’t as open as many hoped heading into 2025.

Market conditions have turned volatile in recent weeks, with AI stocks experiencing a pullback. If this trend continues, AI companies may start questioning whether public markets are the right move at all. Private capital has been flowing freely into AI, as seen in Databricks’ recent funding round, raising the question: Why go public when private investors are willing to fund AI at high valuations?

CoreWeave’s choice to move forward with an IPO, even if it means possibly getting a lower valuation than expected, might suggest that private investors are becoming more discerning. If AI really is the future, you’d think Wall Street would be jumping at the chance to invest. However, if the public markets are holding back, it could signal that AI companies will have to demonstrate their lasting worth, rather than just capitalizing on the current buzz.