CoreWeave's public offering raises significant investment risks

CoreWeave, an artificial intelligence startup supported by Nvidia, is preparing for an initial public offering (IPO) valued at around $2.5 billion. The company's recent success in revenue growth has caught investor attention. In 2024, its revenue surged to $1.9 billion, up from $228.9 million the previous year. However, there are concerns about CoreWeave's financial stability. A significant portion of its revenue comes from a small number of clients. In 2022, 41% of its revenue came from just three customers, and this grew to 73% in 2023. Microsoft's contributions are substantial, comprising over half of CoreWeave's sales in 2024. This heavy reliance poses a risk if Microsoft decides to change its relationship with CoreWeave. Additionally, while revenue is soaring, so are the company's expenses. CoreWeave's operating costs jumped significantly, with notable increases in stock-based compensation and interest expenses. The company carries a substantial debt, which has increased from $1.5 billion to nearly $8 billion in a short time. It has large debt payments due in the next few years but only a limited cash reserve. Overall, the excitement around CoreWeave's IPO is tempered by these financial issues. Concerns around customer concentration and rising losses suggest that the company's future profitability is uncertain. As such, some investors may choose not to invest in CoreWeave at this time.