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Venture capitalists have a concept called “power low.” This is the idea that the majority of the portfolio returns come from several investments. CoreWeave, a US data center operator who applied for the first public offer, offers new variations on the subject.
CoreWeave provides computing capabilities to businesses that want to train and use artificial intelligence. Simply put, it rents nvidia microchips and many of them. More than 250,000 processors from CoreWeave in 32 data centers will more than double the Elon Musk supercomputer Colossus at the end of 2024. Demand is active. By the end of last year, revenues had risen by 170% per year.
Once it’s published, CoreWeave reflects classic power laws in that the original investors actually did very well. We expect EBITDA to more than double this year to exceed $3 billion. Remove approximately $6.5 billion in net debt to the same 15x multiples that Ai’ Hyperscalers meta platform and Amazon enjoys.
The catch is that the concept of the big overshadows familiar to the VC portfolio is manifesting in Coreweave in a less useful way. There is a great power of a handful of suppliers. Three of them – primarily Nvidia supplied three-quarters of CoreWeave’s materials and products purchases in 2024. Its customer base is even more distorted. Microsoft alone accounted for 62% of revenue in 2024.
The close relationship between Nvidia and Microsoft is of course a secret source. However, a major dependency is evaluation risk. Microsoft raises data center space not only itself but for Openai, the owner of ChatGpt. But Sam Altman’s company is also building its own huge data center. At CoreWeave, we’re looking at a market that’s almost $400 million by 2028, but the final calculation of who needs what is still in the end is still catching up.
This is not an issue for now. CoreWeave believes it will generate around $8 billion in revenue over the next two years, compared to under $2 billion in 2024. However, unless it diversifies quickly, the company’s new investors will spend a lot of their time watching nervously about signs that the relationship is ineffective.
This is Silicon Valley and CoreWeave’s shareholder base is also biased. Insiders, including co-founders and CEOs, manage the company with more than 80% of the vote. Some have cut shares in recent bids, but they hold the shares at 10 times the voting rights of other shareholders. New investors have little to say anything important.
Don’t expect this to get in the way of the Roaling IPO. CoreWeave will become the only pure, pure AI data center company in the US market. For retail investors with Nvidia’s stockpile, this is the second bite in AI Cherry. Investors need to remember the actual law of power. In a company controlled by some large clients, suppliers and shareholders, everyone else can be an afterthought.
john.foley@ft.com
