What does CoreWeave’s IPO say about the market?

Rob Armstrong (0:06)

Pushkin. It is a difficult moment to set sale on the initial public offering market. There was a pretty serious correction in US stocks earlier this year that hit tech stocks the hardest of all. None of this is discouraging the good ship CoreWeave, a tech company that in theory is meant to start trading tomorrow, Friday. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am joined today in the studio by Lex editor John Foley. Hi, John.

John Foley (0:51)

Hi, Rob. It's a delight.

Rob Armstrong (0:53)

And down the line from his linen closet in London, we are joined by swivel-eyed conspiracy theorist Rob Smith.

Rob Smith (1:03)

Thanks for that, Rob. My job title for listeners is Corporate Finance Editor of the Financial Times. But yeah, you're not a conspiracy theorist.

Rob Armstrong (1:12)

Six of one, half a dozen of the other, I say.

Rob Smith (1:14)

You're not a conspiracy theorist if they're all out to get you. It's the old phrase case.

Rob Armstrong (1:18)

John, will you start us off by just explaining to our listeners what this company does?

John Foley (1:25)

What CoreWeave does.

Rob Armstrong (1:26)

Yes, I thought it was a kind of men's baldness treatment.

John Foley (1:31)

Or like some kind of textile fashion brand, sleeveless gilets.

Rob Armstrong (1:38)

But it's not, is it?

John Foley (1:39)

Investment bankers, no. What it is is effectively a giant heap of Nvidia chips. So you know these chips that everyone is using for AI to train their algorithms and to spit out answers to questions.

Rob Armstrong (1:53)

Yeah, yeah, draw pictures.

John Foley (1:54)

Inference, as it's known. So that all relies on these Nvidia chips. These chips are quite hard to come by, they're quite expensive. CoreWeave basically takes a bunch of Nvidia chips directly from Nvidia, packages them up in data centers and rents that capacity to companies that want to do AI stuff. Primarily, as I'm sure we'll discuss, Microsoft OpenAI. And that's what it is. It's an AI capacity rental company.

Rob Armstrong (2:19)

And if I'm right, and Rob Smith, I think you might have written a little bit about this. This used to be a cryptocurrency miner. Is that correct? Is that where this came from?

Rob Smith (2:31)

Yeah. So the founders of this business are a bunch of traders. So they're not the typical sort of tech founders. They're not coders, those kind of people. I think they worked at a gas futures hedge fund, and they originally set up CoreWeave as a Bitcoin miner. I think it was called Atlantic Crypto Corporation at the beginning. And then it kept pivoting. So it pivoted to, I think it was like 3D video rendering in the first crypto, one of the first crypto crashes. And then it started adding, oh, we do machine learning. And then because it had a bunch of these Nvidia GPUs, which became like gold dust, right? Everyone was trying to get their hands on it. It became a GPU cloud, an AI hyperscaler. It started renting out this stash of GPUs to these sort of data hungry big tech companies to run these LLMs and everything else that has changed the world in the past few years.

Rob Armstrong (3:31)

Well, it's interesting that the business had its start with a bunch of commodity traders. Because it seems to me that the first question I would ask about a business like this is whether it is a commodity business. In other words, you buy a bunch of stuff from someone else and then you rent that stuff to other people. That sounds on the face of it to me like a kind of low margin business where you are eking out a margin because of differences in the timing of needs of different parties, different finance costs between different parties. In other words, it doesn't sound terribly low barrier to entry. Am I barking up the wrong tree?

John Foley (4:23)

That's definitely a part of it. They're not literally just shipping raw chips out to their rental customers though. So there is a bit of value add around that, which is creating data centers and supplying them with power and all that kind of stuff, and there's a software layer as well. Cloud companies like to tell you that their value add is through software, which is in some cases true. But fundamentally, yeah, this started with a commodity-like trade, which is GPUs, hard to get, lots of people want them. We can join the dots between A and B.

Rob Armstrong (4:56)

Do we have a sense of the margins or the returns this company is earning at this point? I can see from the S1, the IPO filing document, that revenue is growing extremely fast.