CoreWeave has reduced the size of its initial public offering in the US and set its share price below the indicated range, the company said on Thursday, easing expectations that the listing would boost investor appetite for IPOs.
Supported by Nvidia, the company now plans to sell 37.5 million shares, which is 23.5% less than originally planned, at $40 per share, significantly lower than even the lower end of the indicated range.
CoreWeave will offer 36.6 million shares, and existing shareholders will sell 910,000 shares. Nvidia will anchor the CoreWeave IPO with a $250 million order, a source familiar with the matter told Reuters earlier on Thursday.
According to Reuters’ estimates, the sale will raise about $1.5 billion, and CoreWeave will be valued at about $23 billion on a fully diluted basis.
The CoreWeave roadshow, which began last week, was perceived as weaker than expected, as risk-averse investors in the volatile market weighed concerns about the company’s long-term growth, financial risks, and capital intensity, according to four sources familiar with the matter.
Among the issues, CoreWeave is heavily reliant on Microsoft, whose shift in AI data center strategy could impact long-term demand for chips known as graphics processing units (GPUs). While investors seem comfortable with the company’s high leverage due to its strong free cash flow, the risk of default remains a concern.
Moreover, CoreWeave's capital-intensive business model raises questions about its sustainability, adding to broader market uncertainty.
CoreWeave has been a significant client for Nvidia, deploying over 250,000 Nvidia GPUs by the end of 2024. A lukewarm reception from investors for CoreWeave’s IPO may signal waning confidence in the AI infrastructure market as the scaling of GPU assets for AI training slows.
"The business model doesn’t seem fundamentally flawed, but it suggests that investors are recalibrating their valuations of AI infrastructure," said Lucas Mühlbauer, an IPOX research analyst.
CoreWeave and some existing investors had initially aimed to sell 49 million shares at prices ranging from $47 to $55 each to raise $2.7 billion. This would have valued the company at $32 billion on a fully diluted basis.
MOUNTING QUESTIONS
CoreWeave’s debut in the stock market was closely watched as a test of the strength of the US IPO market’s recovery and whether investor enthusiasm for AI startups remains strong or has started to fade.
According to Dealogic data as of Wednesday, the number of equity capital market deals registered in the US, including IPOs and block trades, fell to 187 in the first three months of this year from 243 in the same period last year. The total value of those transactions also dropped from $74.02 billion to $63.48 billion.
Despite the AI boom, concerns are rising that data center spending will be uneven, with investments focused on a few giants and others struggling to keep up.
DeepSeek, a low-cost Chinese AI competitor, is also becoming an increasing threat, intensifying concerns about cost pressures on data centers.
As of last year, CoreWeave's debt was around $8 billion. The company also leases its 32 data centers and some equipment rather than owning them, resulting in operating lease liabilities of $2.6 billion.
In its offering filing, the company said about $1 billion from the IPO will be used to pay down debt. The company stated it will continue to borrow.
CoreWeave has not yet turned a profit, and IPO investors in recent years have been cautious about backing unprofitable companies.
Ahead of its IPO, CoreWeave formed partnerships with leading AI players, including OpenAI's Sam Altman. Earlier this month, he signed an infrastructure deal worth $11.9 billion with the maker of ChatGPT.
The cloud services provider, which offers access to data centers and powerful Nvidia chips for AI workloads, will also issue $350 million in shares to OpenAI through a private placement as part of the offering.
Morgan Stanley, JP Morgan, and Goldman Sachs are the lead underwriters of the IPO.
The size cut was first reported by Semaphore on Thursday.