Why Nvidia-Backed CoreWeave Stock Is Plunging a Day After Its IPO

The much-anticipated initial public offering (IPO) of CoreWeave (NASDAQ: CRWV) came Friday. The stock ended the day where it started trading at its offering price of $40 per share. But stock in the artificial intelligence (AI) hyperscaler is plunging on its first full day of trading.

AI leader Nvidia purchased $250 million at the IPO price according to reports, but that investment is now underwater. CoreWeave shares were down by 7.9% as of 11:08 a.m. ET.

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CoreWeave IPO flops

CoreWeave raised $1.5 billion with its move to go public, but investors are shying away from the cloud platform provider. The company even had to downsize its offering as shares were priced below the expected range.

The timing is one reason for the lackluster reception. The recent market correction has hit tech stocks especially hard. And CoreWeave is relying on robust demand for data center compute power to continue. The cloud company went heavily into debt to build its massive scale of Nvidia GPU chips.

CoreWeave leases data center space to companies needing the compute power it has from 250,000 Nvidia chips it has purchased. One issue is that many of those chips are from the Hopper generation. Nvidia is now producing and selling more powerful Blackwell chips. Next year, an even more efficient Rubin platform will be available.

That's not to say that the Hopper chips aren't in demand. But one question and concern for investors is how much value they will retain as they become more obsolete. CoreWeave utilized debt to build its inventory. CEO Michael Intrator told CNBC, "The debt is the engine, it's the fuel for this company."

The IPO proceeds will help to repay some of its reported $13 billion in debt CoreWeave has raised. But the company will need to continue its fast-paced revenue growth to help cover that debt load. Market uncertainty in general and questions on the runway of relevance for its chip inventory have investors staying away from the stock so far. Only risk-averse investors should consider the stock at this stage.

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Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.