The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, March 5 (Reuters Breakingviews) - Demand is running white-hot for the essential ingredient behind the artificial intelligence boom: chips produced by Nvidia NVDA.O. They’re in short supply and CoreWeave has them, propelling the fast-growing company towards seeking an initial public offering at a valuation of $35 billion or more. Yet this scarcity value could evaporate.

Led by CEO Michael Intrator, CoreWeave began during a prior gold rush: cryptocurrency. Nvidia’s silicon could mine digital coins. More lucratively, it turned out that these chips are also ideal for training and running AI. CoreWeave built up a huge stockpile and rents out access and related services. Revenue of over $1.9 billion last year, according to a prospectus filed Monday, is up eight-fold from 2023.

The company's target of an over-$35 billion valuation, as Reuters reported in November, isn't unreasonable. Oracle ORCL.N, which also provides services for zipping data around the cloud, is valued at 9 times estimated revenue over the next year, according to LSEG. Assume that CoreWeave can triple revenue in 2025 – not so crazy, given recent growth – then, on the same multiple, its enterprise value would exceed $50 billion.

Intrator also has a big advantage. Nvidia backs his company with a 6% stake, and supply shortages ensure high prices for using its chips. Sure, keeping up with skyrocketing demand requires building new facilities, with capital expenditures hitting $9 billion in 2024, tripling year-over-year. But CoreWeave says these investments pay off within two-and-a-half years, based on EBITDA adjusted for items like stock-based compensation. Customer contracts last an average of four years, implying it can lock in profit.

The question is how sustainable this is. Microsoft MSFT.O alone accounted for 62% of revenue in 2024, up from 35% the year prior. Meanwhile, CoreWeave purchased three-quarters of its equipment from just three firms. If suppliers up their prices, or the giant run by Satya Nadella cuts back, the company would take a hit. The shock of China’s DeepSeek, which claimed massive efficiency breakthroughs, threatens demand.

CoreWeave also depends on chip scarcity to fund investments, securing $10 billion of debt capacity tied to the value of its silicon. Magnetar Capital, a major shareholder, is a lender on these facilities. Together with the company’s relationship with Nvidia, it resembles circular economic arrangements common elsewhere in AI.

That ties its fate very closely to the whims of these few firms. Investor fervor has kept the AI industry running hot, but past manias prove how quickly this can melt away. If the temperature drops, so does CoreWeave.

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CONTEXT NEWS

CoreWeave on March 3 unveiled plans for an initial public offering, disclosing that its 2024 revenue grew eight-fold to $1.9 billion from a year earlier and swung to a $324 million operating profit from a loss in 2023.

The company, which sells cloud services and access to chips used in artificial intelligence systems, generated 62% of its 2024 revenue from Microsoft. Three suppliers accounted for 76% of CoreWeave's purchases. Chipmaker Nvidia owns a 6% stake.

CoreWeave’s IPO prospectus does not yet indicate how many shares it plans to sell or at what price. It is likely aiming to raise more than $3 billion at a valuation that exceeds $35 billion, Reuters reported on November 22, citing unnamed sources.

(Editing by Jonathan Guilford and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com))