Today marks the first day of trading for CoreWeave on the stock market, and the initial signs are not promising for the AI sector. Initially, the company aimed to sell shares at $47 to $55 each, but trading began at $39, despite receiving significant support from Nvidia with a $250 million order at $40 per share. A closer examination of CoreWeave’s business fundamentals reveals numerous concerns, which may explain the underwhelming demand from investors.

In recent years, CoreWeave found itself in a favorable position. Established in 2017, the company initially supplied GPUs to the cryptocurrency mining industry before shifting its focus to AI as it became the emerging trend. CoreWeave operates as a “picks and shovels” business, providing GPUs to an industry that has been eager to acquire them.

However, it appears that the industry’s demand for these GPUs has decreased. CoreWeave’s decision to go public coincides with its largest customer, Microsoft, reducing its spending on AI infrastructure. This includes the cancellation of data center leases globally and allowing OpenAI to explore alternative partnerships. The launch of ChatGPT in 2023 led to a surge in demand for chips, but this shortage seems to be easing, potentially negatively impacting CoreWeave. According to the Wall Street Journal:

The supply shortage has since subsided, and companies now find it relatively easy to purchase the necessary chips. The cost of renting a GPU for an hour dropped from $5.50 in mid-2023 to $1.55, as stated by Evan Conrad, CEO of San Francisco Compute, a market for GPUs.

To put this risk into perspective, Microsoft accounted for a significant 62% of CoreWeave’s revenue in 2024. However, the company has chosen not to exercise its option for an additional $12 billion in infrastructure, which was subsequently taken up by OpenAI.

Furthermore, Nvidia has been a significant backer of CoreWeave, but the funds provided have been used by CoreWeave to purchase Nvidia GPUs, accounting for 6-7% of Nvidia’s business. Being reliant on just two companies, Microsoft and Nvidia – with the former reducing its AI investments – does not seem like a position of strength.

Moreover, CoreWeave is struggling under a substantial debt burden. Despite generating $1.9 billion in revenue in 2024, the company incurred losses of $6 billion last year and $1.1 billion the previous year due to the high expenses associated with building out its AI infrastructure. CoreWeave has raised eyebrows in the past by carrying nearly $8 billion in debt and using GPUs as collateral, which is concerning given the decline in GPU prices and the development of more efficient AI models that require fewer resources. At the very least, CoreWeave is expected to raise around $1.46 billion in the public offering, which will enable it to pay down some of its debt.

If CoreWeave continues to underperform in the coming days and weeks, it could create problems for other AI companies planning to go public. These companies need a successful IPO, especially since few have gone public in recent years. While tech companies have experienced poor firstdays of trading in the past only to rebound, today’s performance is not necessarily a death knell for CoreWeave. The broader stock market has been affected by President Trump’s tariff strategy in recent days.

CoreWeave can be seen as the first indicator of current market stress for GPUs. Nvidia CEO Jensen Huang and other industry experts argue that new “thinking” models require more resources, and as AI adoption increases, the demand for GPUs could continue to rise in the coming years, even as models become more efficient. However, these are “picks and shovels” businesses, and it is in their interest to emphasize the need for more picks and shovels. OpenAI’s Sam Altman recently posted on X that demand for ChatGPT’s new image generator was “melting” GPUs. Whether this is a short-lived trend, as seen with the creation of novelty Studio Ghibli knockoffs, or something more sustainable, remains to be seen.

Regardless, CoreWeave appears to be on shaky ground. What happens as chip prices continue to decline and major tech giants develop their own Nvidia competitors in-house? Why should CoreWeave be valued at $32 billion, as expected on its first day of trading? And what if the AGI boom does not materialize? This company has been propped up by excessive hype over the past two years, selling picks and shovels before any other critical AI company has gone public and proven that these products are more than just glorified next-word predictors with the reliability of an unpaid intern.

“None of these companies are generating profits from generative AI, and outside of OpenAI, there really isn’t demand for these services,” said Ed Zitron, a public relations expert and host of Better Offline. “If there was, Microsoft wouldn’t have just pulled out of 2GW of future compute capacity.”

CoreWeave’s three founders will be unaffected either way. They cashed out nearly $500 million of their holdings between 2023 and 2024.