A Deep Dive into Newly Listed AI Cloud Company CoreWeave

CoreWeave, a cloud services company that rents out GPUs, has begun the IPO process and filed its S-1.

An S-1 filing is the official prospectus of a company ahead of an IPO, and effectively the first formal set of information the company provides to investors in an objective and structured way. Through the S-1, investors can more clearly assess the company’s growth potential, financial soundness, and competitive landscape, and decide whether to participate in the IPO.

The three incumbent hyperscale cloud providers—Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform—rent out not only GPUs but also CPUs, networking, storage, and other general computing resources. By contrast, AI hyperscalers like CoreWeave rent out only AI compute resources. Here, AI compute resources essentially mean GPUs.

Looking at the revenue growth rate and the average contract term (four years), the company is growing at a remarkable pace while also securing stability through long-term contracts. Three consecutive years of net losses are a negative, but the loss as a percentage of revenue has fallen sharply in 2024.

Surprisingly, Microsoft (MSFT) accounted for 62% of 2024 revenue, making it CoreWeave’s largest customer. This is because, rather than procuring all of the GPUs needed for its Azure cloud services directly from NVIDIA, Microsoft partially leases GPUs from CoreWeave and then subleases them to its own customers. The model is similar to the way shared-office provider WeWork operates.

Of course, Microsoft still procures a large portion of its GPUs directly from NVIDIA (it was NVIDIA’s largest customer in 2024), and the GPUs it leases from CoreWeave represent only a fraction of its total. Even so, this choice can be interpreted as a way to give up some margin in order to stay flexible in meeting future GPU demand.

1) Payback period
CoreWeave’s customers pay 15–25% of the contract value upfront. This allows the company to partially fund its infrastructure investments internally, without relying entirely on external capital. The company estimates the payback period on GPU capex at about 2.5 years, after which, from year three onward, the assets generate positive cash flow. For contracts to be attractive, their term needs to extend beyond this point, and the current average contract term is four years.

2) Owning data centers could change the business model
CoreWeave currently leases data center space, but according to the S-1, it appears to be planning to build its own infrastructure over time. This would represent a shift toward a capital allocation strategy more akin to the AWS model and could require several billion dollars of upfront investment.

③ IPOs Favor Insiders Over Retail Investors
The Series B and C preferred shareholders are entitled to receive additional shares automatically if the IPO offer price is set below a certain threshold. This dilutes the ownership of common shareholders. While this structure protects institutional investors from downside risk, it effectively shifts the burden onto retail investors.

④ Large-Scale Selling Risk After Lock-Up Expiration
After the IPO, insiders are generally restricted from selling shares for 180 days, but early sales can be allowed if certain conditions are met. In particular, private equity investors seeking an exit may trigger significant selling pressure once the six-month lock-up period ends.

⑤ Magnetar’s $230 Million “Cloud Deposit” Is Closer to Accounting Engineering
In August 2024, CoreWeave received a $230 million refundable deposit from Magnetar under a pre-negotiated cloud services agreement. If Magnetar’s portfolio companies do not end up using CoreWeave’s services in that amount, CoreWeave must return the deposit at 1.1 to 1.7 times the original value. This raises concerns that it is not genuine revenue, but closer to “financial engineering.”

Considering the IPO ratchet, early liquidity options, and structured agreements with key investors, this IPO appears to be carefully engineered around existing investors and insiders. While the company itself is growing rapidly, its capital structure and investor base suggest that the listing is less about sustaining a long-term public market presence and more about providing an exit opportunity for prior investors and insiders.