Monologue: We Need To Talk About CoreWeave

In this week's monologue, Ed Zitron walks you through CoreWeave, the first IPO of the AI bubble, and how its terrible finances, burdensome loans and questionable partners are cause for concern. Newsletter: https://www.wheresyoured.at/core-incompetency/ --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at https://discord.com/invite/QUUQUP9szv Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:36Speaker 01

  Core Wave Media.

• 0:39Ed Zitron?

  Bird up! I'm Ed Zitron, and this is your weekly Better Offline Monologue.

• 0:48Speaker 03

  Better Offline.

• 0:51Ed Zitron?

  So last week I put out a newsletter about Core Wave, an AI cloud provider that sells GPU compute to AI companies looking to run or train their models. And they recently filed the paperwork to go public. Now, the newsletter explained the shaky fundamentals of the business, which is putting it mildly, and asked the question, "How the fuck does Core Wave survive?" This is a company that's drowning in debt and reliant on one company for more than half of its revenue, and said company Microsoft is actively pulling away from building new data center capacity and has reportedly pulled back from some contracts with Core Wave, though it's not clear what those contracts are. Now, this is an important story and one that raises questions not just about the viability of Core Wave, but the generative AI industry at large.

• 1:35Ed Zitron?

  That said, the subject matter is a little dense to turn into a hulking two-part episode, so I decided to condense it into a shorter monologue for you. Now, Core Wave had intended to go public a week ago. They might go public in a week from now. And they're apparently going with like a $25 billion to $30 billion valuation. While it's hardly a recognizable name, like, say, OpenAI or Microsoft or Nvidia, this company is definitely worth taking a look at, if not for the fact that it's arguably the first major IPO that we've seen from the current generative AI hype bubble, and it's undoubtedly the biggest. Moreover, CoreWeave is a company that deals in the infrastructure aspect of AI, where one would naturally assume is where all the money really is,

• 2:16Ed Zitron?

  putting up servers for hyperscalers to run their hallucination-prone, unprofitable models. If Nvidia, the company that makes the GPUs for generative AI, is selling the pickaxes for the current gold rush, CoreWeave, well, they own the land, or maybe they're the shovels. I don't know, I'm not going to get too far into that metaphor. As an aside, up until a few years ago, CoreWeave was a different company, a cryptocurrency-mining data center company, to be specific. Now, the 2010s were turbulent for crypto, and the company then pivoted to providing high-performance computing for third parties that didn't want to run their own infrastructure for things like 3D modeling. Around the time of the launch of ChatGPT, CoreWeave pivoted again, this time towards providing compute to hyperscalers and then generative AI interest.

• 3:00Ed Zitron?

  It gambled, and it gambled successfully. You'd imagine that such a company would be a thriving, healthy business, though, right? They, I mean, they, they sell the server architecture, the demand is there, the growth is there. I mean, everyone wants generative AI, right? It wouldn't be another thing where the reality... Jesus Christ. Even a cursory glance at CoreWeave's financial disclosure documents reveals a business that's precarious at best, and in my most uncharitable opinion, it's utterly rancid. If this company was in any other industry, it would be seen as a big pile of shit. Except it's one of the standard bearers of the generative AI boom, and so it exists within its own reality distortion field.

• 3:44Ed Zitron?

  Now, CoreWeave makes its money by renting out GPUs to companies looking to run or train their models, which means that it's incredibly indicative of whether there's a real business in generative AI, and you'll be shocked to hear that there isn't. CoreWeave made just under $2 billion in 2024, yet somehow managed to lose $863 million. Worse still, 77% of its revenue comes from two companies: Microsoft, 62%, and although not said explicitly, most likely Nvidia, 15%. Now, the information is reported Project Osprey, which is basically Nvidia's stake in the fact that they're fining money to them. It's actually not immediately obvious what it is that Nvidia is paying CoreWeave for, though. Nvidia has both invested in the company and provides it with priority access to its chips,

• 4:28Ed Zitron?

  with CoreWeave getting some products before even Amazon or Microsoft. It's bonkers, and again, you'd think with all this preferential accents... CoreWeave would be just printing money, right, versus burning it, burning it by the hundreds of millions full. I wish I could get this much money and just, I don't know, I would be doing a far weirder podcast. It would be exactly the same thing. Better Offline would exist. I would just have hundreds of millions of dollars. We'd have just like Samuel L. Jackson coming in for some episodes. Anyway, I don't have that money. If you'd like to give it to me, please, please do. Now, a few weeks ago, the Financial Times reported that Microsoft had pulled out some of their CoreWeave contracts, though CoreWeave denied the allegations. And mysteriously, a week later, OpenAI announced that they

• 5:12Ed Zitron?

  had an $11.9 billion contract with CoreWeave to provide compute services. Now, while I can't say for certain, can you think of another reason Microsoft needed a whole bunch of GPU compute other than to host OpenAI's models? Hmm. Now, I'm just guessing here, but one has to wonder if it wasn't so much OpenAI signing a new deal and more it taking over the future compute that Microsoft was formally handling. And yes, you're remembering correctly. Microsoft has recently canceled more than the gigawatt of future compute capacity, though from what I've heard, its CoreWeave contracts, future or otherwise, weren't included in that number. Anyway, for CoreWeave to make that $11.9 billion in revenue from OpenAI, they're going to need compute, which

• 5:57Ed Zitron?

  will cost them tens of billions of dollars to build, which will be difficult as the company is burdened with about $8 billion of debt with horrifying interest rates, which may lead it to pay upwards of $1.5 billion a year in loan payments, with one of them requiring CoreWeave to repay the loan with any other debt they raise in the future. CoreWeave, by my estimates, needs at least $30 billion to expand. It has about $1.3 billion in the bank and just under $4 billion left on its loans that it can draw. One of them is a term loan where you can draw more up until about June 2025. Although CoreWeave will raise capital in its IPO, the amount won't be anywhere near enough to meet its needs. And when I say its needs, I mean like the ability to service the revenue that they need to.

• 6:41Ed Zitron?

  Spend more money. Really does not make a lick of sense when you think about it. And you may wonder if things can get worse, and the answer is that they can. CoreWeave has a planned 1.3 gigawatts of expansion. And its partner to build it is a public company called Core Scientific. Different company, similar name, genuinely different. Here are some facts about Core Scientific. They went public in 2022 in a disastrous SPAC merger and then filed for bankruptcy in the same year. Their entire business has been focused on mining Bitcoin, which requires specialized ASIC computer chips that are entirely different, both in their construction and their maintenance to GPUs. And they can only really be used for mining crypto. They're not easily repurposed for other tasks.

• 7:25Ed Zitron?

  And indeed, their data centers are not just a plug and play thing. You basically have to demolish them. And another thing about Core Scientific, they only made $24 million in 2024 from selling AI compute-related services to their customers. That's around 5% of its total revenue, with the rest coming from mining and selling crypto. Also, really dumb ass mistake I just made there. I said customers. I meant customer. Core Scientific has one customer, and that customer is, it's CoreWeave. As of right now, CoreWeave has approximately 360 megawatts of compute power. Somehow, it intends to build another 1.3 gigawatts worth of compute using a partner that has never built an AI data center and does not appear to have any meaningful compute right now.

• 8:08Ed Zitron?

  This is all so good. I love this. Let's fucking go. This is the big IPO. This is the big AI IPO. I'm going insane every time I read about these goddamn companies. But let's summarize. CoreWeave is burdened by interest payments that may balloon to as much as $2 billion a year and lost $863 million on $2 billion of revenue in 2024. 62% of that revenue is from Microsoft, which has materially pulled back on data center build outs and may have dropped some CoreWeave contracts, though CoreWeave denies this is the case, of course. CoreWeave's expansion, which is critical to servicing future revenue and growth, requires it to invest tens of billion dollars that CoreWeave does not have. CoreWeave's data center

• 8:50Ed Zitron?

  Is dependent on what is primarily a Bitcoin mining company called Core Scientific. It appears to have no AI capacity building. And they're meant to build over a gigawatt of capacity, a time where they do not appear to have done so. And as a reminder, converting cryptocurrency mining data centers to HPC data centers is effectively starting from scratch. It's not good. It's not good at all. Corrie should have been a positive signal for generative AI, or at least the way for generative AI to kind of go further than where it is today, or at least a way for AI boosters to shut me up. If generative AI had this incredible demand, both from companies looking to integrate it and use, looking to use it.

• 9:31Ed Zitron?

  Corrie would be making fat stacks of cash and have a far more diverse customer base. And if I'm honest, not have to take out more than five times its revenue and burdens from loans with loan shark level interest rates just to survive.

• 9:45Ed Zitron?

  But it, it is what it is, I guess. And another note, Jim Cramer of CNBC, he said that Corrie was going to be one of the biggest IPOs of the year. That should tell you about everything.

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