Microsoft’s Just Wrecked CoreWeave’s “Historic” $35 Billion IPO Plan… Is This a Prime Buying Window?

Microsoft is on a breakup spree, and it’s getting expensive. First, it finally decided to put Skype out of its misery… 14 years and $14.5 billion later. And now? It’s ghosting CoreWeave, the AI data center superstar that was hoping for a historic $35 billion IPO next month (which would be the biggest this year).

In case you’re not a tech nerd… CoreWeave is a cloud computing provider (originally founded as Atlantic Crypto) that switched from mining crypto to training AI models on Nvidia’s GPUs. Microsoft was its biggest customer, representing  62% of CoreWeave’s revenue last year. But now, Microsoft’s CEO Satya Nadella  is backing out of some of its commitments, citing delivery issues and missed deadlines.

To be clear… Microsoft isn’t completely cashing out of all its AI investments. The company is still planning to throw around $80 billion this fiscal year to build out AI infrastructure. But CEO Satya Nadella recently admitted there’s been an “overbuild” of AI infrastructure. They went a little too hard, and now they’re cutting back.

CoreWeave, however, isn’t just some random casualty of a budgeting meeting. Microsoft’s decision to pull out of certain deals reportedly stems from a lack of confidence in CoreWeave’s ability to deliver. And when your biggest customer decides you’re not worth investing in anymore… that’s not great news for an IPO.

Just days before the news broke, CoreWeave filed for its big New York IPO, aiming to raise $4 billion at a $35 billion valuation. But even in its own filings, the company basically admitted that if Microsoft sneezed in the wrong direction, CoreWeave’s business could catch pneumonia. Their S-1 filing warned that any “negative changes in demand from Microsoft” could be a disaster for their business. Well, turns out they weren’t just being paranoid.

Despite making $1.9 billion in revenue last year (up from just $229 million in 2023), CoreWeave is still posting massive losses… $863 million in 2024 alone. The company has also taken on $14.5 billion in debt and equity financing, including $11 billion in loans. That’s a lot of money to owe when your biggest customer suddenly loses interest.

But it gets worse… Nvidia is both CoreWeave’s biggest supplier and a major investor. The AI chip leader owns more than 5% of CoreWeave, and the company has amassed over 250,000 of Nvidia’s AI GPUs. But even Nvidia CEO Jensen Huang admitted that their latest Blackwell chips had “design flaws” leading to delays in shipments, which likely didn’t help CoreWeave’s already crumbly standing with Microsoft.

Oh, and in case you’re wondering if CoreWeave’s execs are feeling the heat… they’re not. The three co-founders have already cashed out at least $150 million each since December 2023. If that doesn’t scream confidence in their company’s long-term prospects, I don’t know what does.

For Microsoft, this move is unlikely to have a significant impact. The company continues expanding its AI infrastructure, even as it fine-tunes its partnerships. While Microsoft’s stock has underperformed some of its Magnificent 7 peers… it’s only down 4% compared to Nvidia’s -17% and  analysts are still optimistic it’s gonna bounce back.

Microsoft’s stock has been struggling, recently hitting a 52-week low before making a slight recovery (Wall Street had a mini panic attack, then remembered Microsoft basically owns the cloud). The broader AI trade has lost steam, and Microsoft’s heavy AI spending has yet to yield proportional returns. But despite the recent sell-off, 36 out of 43 analysts still rate the stock as a “Strong Buy.”

With Microsoft now trading at a more reasonable valuation compared to its historical averages, this pullback could be an opportunity to scoop up more stock at a bargain. If anything, cutting ties with CoreWeave might signal that they’re focusing on quality over hype… something that could actually benefit shareholders in the long run.

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Stock.News has positions in Microsoft.