Cloud companies that rent servers have been some early winners of the AI revolution.
Some of the early winners in AI Boom were cloud companies that rented servers – mainly Amazon.com, Microsoft and Alphabet. However, investors have to commit to these so-called massive beliefs – in the financial reports of the technology giants, the economic value of AI cloud computing is obscured, and their cloud units are mostly filled with traditional servers for websites such as websites, games, applications, and more.
However, due to the recent prospectus to CoreWeave, it has a new window that is listing the initial public offering of Nasdaq shares. CoreWeave’s only business is to rent AI servers. Currently, this is a fast growth but a small part of the Big Tech business, although that seems to be a major concern for investors. Given their focus, big tech investors should be excited about Coreweave’s initial success.
Coreweave started in 2016 as a crypto mining company. After Bitcoin crashed in 2018, it had to find a new use case for its idle servers, so it started renting it for AI computing.
When Chatgpt debuted in November 2022, Coreweave was in the right place at the right time. CoreWeave is a pure AI drama, even more important than AI leader Nvidia. According to FACTSET, it has been a venture capital darling since the start of the AI boom, raising $2.2 billion, with a valuation of $23 billion in the last November.
Now, Coreweave’s financial position between 2022 and 2024 is public, and investors can see what super-rated players need to run the operation of AI Cloud Services, which is inconsistent with their consolidated reports. And there is a lot of good news, and the risk of rapid growth.
First, the benefit: For Coreweave’s AI cloud business, capital expenditure has been effective, which adds the most important. Capital expenditures depreciate over the useful life of assets, ranging from four to six years in the case of network equipment and servers. Coreweave’s $863 million depreciation in 2024 helped release $1.9 billion in revenue; both figures rose 737% from the previous year.
At the same time, the income source is already very rich. Coreweave’s operating income rose to $324 million in 2024 in 2024. At the fourth quarter annual operating rate, the company had operating profit of $451 million, revenue of $3 billion, and the weight of depreciation costs decreased by $1.5 billion.
The mathematics seen in Coreweave’s finances helps explain why big tech names like Amazon, Microsoft and Alphabet’s Google spend so many billions on CAPEX: Every dollar invested by AI Cloud will quickly pay off due to high demand and rapid growth rates of enterprises.
This is probably what Hyperscaler cloud providers see. A small percentage of their cloud services in 2022 are now growing at a high rate. Even though depreciation costs are rising rapidly in all capital expenditures from 2023 to 2025, these AI cloud units may have seen operating profits.
Bad news: It’s a hot show. As capital expenditure begins to be consumed in 2025, depreciation costs will continue to rise. If revenue growth does not keep up in 2026 for any reason, then these operating profits may disappear soon. It makes CoreWeave a high-risk, high-reward proposition.
However, advanced standards can absorb this risk to a large extent, and Coreweave’s finances may make investors more comfortable with their massive AI spending. It’s too early to say whether Coreweave’s IPO will work, but big tech investors can take solace from filings: AI Revolution has been only two years old, and the cloud business is already generating real profits.
Please write to Adam Levine at adam.levine@barrons.com
