CoreWeave struggles with mounting debt and weak financial controls

CoreWeave, a data center and cloud computing company specializing in GPU-based workloads, is set to go public with an initial public offering (IPO) that has raised eyebrows about its proposed valuation. The company’s expected valuation of $27 billion is seen as excessive, especially when analyzing its revenue growth projections of 30% annually for the next seven years. Analysts point out that this goal is highly ambitious, particularly given the competitive landscape and ongoing capital requirements. Significantly, CoreWeave has made strides in reducing its expense ratio, with general administrative costs expected to drop from 38% to 6% of revenue between 2022 and 2024. Despite these improvements, the company's internal controls have been flagged as inadequate, raising concerns about the reliability of its financial reporting as it prepares for the IPO. As of December 31, 2024, CoreWeave reported a total indebtedness of $8 billion; however, this figure is believed to grossly underestimate its actual obligations, which could eclipse $16.5 billion when including future lease commitments. The competitive environment further complicates CoreWeave's position, particularly because its largest customer, OpenAI, is also a competitor building its own data centers. This scenario may impact demand for CoreWeave’s services, calling into question its sustainability in a market where major players like Microsoft might consider in-house solutions as a cheaper alternative to leasing space and infrastructure from CoreWeave. Analysts also emphasize the risks associated with reliance on high-margin growth in a sector that is experiencing rapid investments and innovation, often coupled with high operational costs. Investors in the IPO may face substantial downside risks due to the dual-class share structure that limits voting power. Moreover, despite the potential for large revenues, it remains uncertain if the company can maintain the profit margins and growth necessary to justify its valuation. As CoreWeave navigates this IPO, its ability to improve profitability and manage its staggering debt will be crucial determinants of its future success.