Is the market for initial public offerings (IPOs) finally coming out of its slumber? Spurred on by the growth of artificial intelligence (AI), it just might be.
Since the 2021 popping of the bubble for hypergrowth and special purpose acquisition companies (SPAC), very few new technology stocks have gone public. In 2021, over 1,000 companies came public. That number fell to around 200 in each of the last three years.
Now, 2025 may see a resurgence in IPOs. We have buy-now-pay-later giant Klarna set to hit the public markets shortly. Perhaps most important will be CoreWeave, an AI infrastructure start-up backed by Nvidia.
It just filed its paperwork to go public and should make a debut sometime in 2025. With revenue growing at a blistering pace, there is bound to be a lot of excitement around this first blockbuster IPO in the AI sector.
Should you join the party and buy some shares of CoreWeave?
Fast revenue growth, large deals
CoreWeave is trying to compete with the hyperscaler cloud computing providers (for example, Amazon Web Services) by building data centers and computing clusters custom-made for AI. It began as a start-up that pivoted from cryptocurrency mining when it realized all the Nvidia computer chips it owned would be perfect to sell to AI software companies.
As you are likely well aware of, demand for AI-focused cloud computing has gone crazy in the last few years and turned Nvidia into one of the top three most-valuable stocks in the world. CoreWeave — which Nvidia invested in — has benefited greatly from this spending.
Revenue was $1.9 billion in 2024, up 737% year over year from 2023. It looks like this fast revenue growth will continue in 2025 as its remaining performance obligations or backlog has reached $15.1 billion at the time of its IPO prospectus.
It looks like this backlog might grow, too. In exchange for ownership in the company, CoreWeave has signed an $11.9 billion contract with start-up OpenAI ahead of the IPO. OpenAI will now own $350 million worth of CoreWeave stock and use its infrastructure for its AI services. Growth, without exaggeration, has been phenomenal for CoreWeave in the last few years.
Customer concentration and cash burn
The growth metrics look quite attractive at CoreWeave. But it isn’t all sunshine and rainbows. It has heavy customer concentration with Microsoft, which accounted for 62% of its revenue in 2024.
I see this as a big risk to its business. Microsoft is in reality a competitor with its Microsoft Azure cloud service and is going to CoreWeave to help match up the computing demand from its AI customers such as OpenAI. If/when supply catches up with demand in the AI sector, Microsoft could easily take its data center spending in house instead of outsourcing it to CoreWeave.
The intense cash burn is also nothing to sneeze at. In order to finance its growth and build out all these data centers, CoreWeave has taken on $2.5 billion in short-term debt and $5.5 billion in long-term debt.
In 2024, it burned $6 billion in free cash flow due to its $8.7 billion in capital expenditures. CoreWeave has a massive backlog, but in order to make this business profitable, it needs to keep growing revenue at a rapid pace. This is not guaranteed to happen and is a risk to the company.
Smart investors know what to do with IPO stocks
Even with the current correction of the Nasdaq index, there is a ton of excitement around AI stocks and the CoreWeave IPO. Unless the market crashes and management pulls the IPO, this will likely be one of the biggest debuts in recent years.
That doesn’t mean you should buy the stock at the IPO. Smart investors know that two-thirds of IPOs underperform the market for three years after they go public. This is likely due to the lockup periods that restrict the ability to sell stock at the IPO. Insiders will typically sell some stock after this lockup period ends, which can drive down prices.
There is a lot to like with CoreWeave’s business. It is growing incredibly quickly in a space (AI) that has loads of potential for growth. But it is also burning a lot of cash, has major customer concentration risk with Microsoft, and could underperform the broad market like most other IPOs.
Keep CoreWeave stock on your watch list for now. According to the historical data, you will have the chance to buy it for a cheaper price in the next few years.
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