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NVIDIA (NVDA) invests US$350 million core weaving (CRWV) currently holds 7% ahead of its IPO. CoreWeave makes up more than 86% of Nvidia’s $3.84B artificial intelligence portfolio.
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CoreWeave’s market capitalization has fallen 60% from its peak in June to $39B. The company had revenue of $1.36B in the third quarter, but continued to lose money despite strong growth.
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Nvidia has committed to purchasing $6.3B of unsold CoreWeave cloud capacity through 2032, but this revenue support raises questions about the true AI needs of end users.
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NVIDIA (Nasdaq: NVDA) has made a strategic portfolio of public investments in companies focused on artificial intelligence, including chip designers, data center operators and infrastructure providers, but many investors are unaware of it. It consists of six assets and was valued at approximately $3.84 billion at the end of the third quarter.
The dominant position is in core weaving (NASDAQ: CRWV) is an artificial intelligence specialist cloud provider that relies heavily on Nvidia GPUs, accounting for more than 86% of the portfolio value.
Nvidia invested $350 million in CoreWeave in two tranches before its IPO in March. The company initially invested $100 million in April 2023 and invested an additional $250 million before the IPO, offering a total of about 24.2 million shares at $40 per share for a 7% stake in Nvidia.
Following its IPO, CoreWeave surged to an all-time high of $187 per share in June, but has been declining fairly steadily since then. Despite nearly doubling its IPO price, the stock is still down nearly 60% from its peak. On Friday, the stock fell another 10%, with its market value falling to about $39 billion, a sharp decline from its market value of nearly $80 billion at the end of June.
Friday’s plunge came after a U.S. Securities and Exchange Commission (SEC) Form 4 filing showed Chief Financial Officer Nitin Agrawal sold 66,467 shares on Dec. 11 at an average price of $82.58, totaling about $5.49 million. While investors are often cautioned to ignore insider trading because they can sell stock for any reason (or no reason at all), trades made by CFOs should be watched because of their expert knowledge of the company’s finances.
However, the Agrawal transaction resulted from the vesting of restricted stock units and the sale involved associated withholding tax obligations. Insider trading is common when RSUs vest and are often used for administrative purposes rather than signaling underlying problems. This isn’t a big deal for CoreWeave, as Agrawal still owns more than 203,000 shares after the sale.
However, the challenges facing CoreWeave reflect broader skepticism about the growth trajectory of the AI industry. Analysts and investors have highlighted a potential “revolving financing” dynamic, in which Nvidia provides investment or capacity commitments to customers who buy its hardware.
CoreWeave’s deal with Nvidia includes a $6.3 billion deal in which Nvidia commits to buying all unsold cloud computing power through April 2032, which provides revenue support but raises questions about the true needs of end users.
Across the industry, major tech companies are increasingly relying on debt to fund massive AI infrastructure projects due to a lack of operating cash flow. meta platform (NASDAQ: META) to issue $30 billion in bonds in 2025 to support data center expansion, and Oracle (NYSE: ORCL ) just faced a backlash from investors following its third-quarter earnings report. The company’s shares fell 15% on concerns about ballooning debt levels (over $100 billion) and negative free cash flow related to its promise of artificial intelligence.
These developments have sparked debate about the risks of overinvestment, potential overcapacity, and the long-term profitability of AI buildouts.
For CoreWeave, despite strong third-quarter revenue of $1.36 billion (a significant year-over-year increase) and a large order backlog, the company continues to post net losses and relies heavily on debt financing, including a $2.6 billion convertible note issuance it just completed this month, albeit at a lower interest rate of 1.75%.
High capital expenditures for data center expansion, expected to reach tens of billions of dollars in the coming years, are seen as straining its balance sheet.
CoreWeave was a major drag on Nvidia’s portfolio performance. Although five of the six holdings have fallen since the end of the third quarter, resulting in a significant decline in the portfolio value overall, CoreWeave’s 42% decline was roughly twice as large as the next largest decline, Nibis Group (NASDAQ: NBIS ) fell 22%. only Apply numbers (NASDAQ: APLD ) posted gains in the period.
However, analysts remain generally optimistic about CoreWeave’s prospects, citing its revenue growth, customer relationships and backlog as supporting factors. However, continued recovery depends on demonstrating profitable execution, effectively managing leverage, and demonstrating enduring demand for AI amid doubts about financing and sustainability. Until it can prove this, I won’t buy CoreWeave just yet.
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