Nvidia Invested in CoreWeave, but I Won't Be Buying the IPO

Nvidia's (NVDA) recent investment in CoreWeave, a cloud computing services startup, has sparked interest in the potential IPO of the generative AI startup. However, despite the hype, I won't be rushing to buy the IPO for several reasons.



Firstly, CoreWeave's business model relies heavily on long-term contracts and prepayments, which could face challenges in an oversupply scenario for AI computing capacity. In such a scenario, customers may prefer to lease capacity at market rates rather than commit to long-term contracts at fixed rates. This shift in customer behavior could make CoreWeave's revenue less predictable and potentially impact its profitability.



Secondly, CoreWeave's revenue is heavily concentrated among a few customers, with 77% of its revenue coming from just two customers in 2024. This extreme customer concentration poses a significant risk to the company's financial stability and could indirectly impact Nvidia's investment.

Lastly, the AI chip market and pricing dynamics present potential risks and challenges for Nvidia as a major shareholder in CoreWeave. An oversupply of AI computing capacity could lead to a decrease in pricing, negatively impacting Nvidia's sales of AI accelerators and CoreWeave's business model. Additionally, competition from cloud giants like Microsoft's Azure and Amazon's AWS could potentially undercut CoreWeave's pricing or offer more competitive services, impacting CoreWeave's market position and Nvidia's investment.

In conclusion, while Nvidia's investment in CoreWeave is an interesting development, the potential risks and challenges associated with CoreWeave's business model and the AI chip market make it less appealing for investors to buy the IPO. It is essential to monitor the AI chip market dynamics, CoreWeave's financial health, and the broader AI industry trends to make informed decisions about investing in CoreWeave's IPO.