CoreWeave's $6.3 Billion Nvidia Deal Reveals AI Industry Shifts

Strengthening Ties Between CoreWeave and Nvidia

CoreWeave Inc. and Nvidia Corp. are taking their partnership to the next level with a new cloud-services agreement worth $6.3 billion, which is providing some comfort to investors. The deal, announced earlier this month, allows Nvidia to access computing capacity that it cannot sell under an existing agreement from April 2023. According to a report filed with the Securities and Exchange Commission (SEC), CoreWeave has committed to selling any unused data-center capacity to Nvidia until April 2032.

This arrangement could help ease investor concerns about CoreWeave’s business model, which currently relies heavily on a few key customers and faces stiff competition in the AI infrastructure market. Despite the high demand for AI compute power, the company's financial stability remains a point of interest for many stakeholders.

On Monday, CoreWeave's stock price increased by 7.6%, showing positive market sentiment. The company provides large-scale access to AI hardware, including Nvidia’s graphics processing units (GPUs), to developers and major tech companies such as Microsoft and OpenAI. It operates as one of several emerging neoclouds, offering alternatives to traditional hyperscalers like Amazon Web Services and Google Cloud.

In a statement shared with DISCOVER TRENDS, CoreWeave highlighted that the expanded contract with Nvidia demonstrates its scale, trustworthiness, and crucial role in advancing AI innovation globally. An Nvidia spokesperson emphasized the long lead times and extended customer commitments required to build sufficient data center capacity to meet industry demands.

To support startups and small to mid-sized companies, both companies are actively developing data center infrastructure and allocating capacity to meet evolving capital needs. Before its initial public offering in March, CoreWeave announced a significant contract with OpenAI worth up to $11.9 billion. This was followed by another deal in May with the ChatGPT maker, valued at up to $4 billion, set to last until April 2029.

In a Form-10Q filing for the period ending in June, CoreWeave revealed that Microsoft, a top-backer of OpenAI, is one of its two largest customers. The company also expects OpenAI to remain a significant client in the future.

However, analysts have raised concerns about CoreWeave’s reliance on large customers. Seaport Research analyst Jay Goldberg noted that while the company's focus on big clients is its greatest risk, he initiated coverage of CoreWeave’s stock with a neutral rating.

Since its IPO in March, CoreWeave’s stock has nearly tripled, showing strong investor confidence. However, MoffettNathanson analyst Nick Del Deo cautioned that despite strong AI demand, investors should be cautious. He pointed out that while the outlook for CoreWeave is favorable, its infrastructure capabilities are not uniquely superior and can be matched by competitors.

For instance, the Netherlands-based Nebius Group N.V. recently announced a multiyear deal worth $17.4 billion with Microsoft to provide AI infrastructure for a new data center in New Jersey. This development reflects the growing demand for AI compute capacity and the increasing trend of tech companies seeking alternatives to hyperscalers.

Del Deo believes that while the move highlights rising AI demand, it also suggests that returns on delivering AI infrastructure to large customers may decrease due to competitive pressures. As the AI landscape continues to evolve, CoreWeave and its partners will need to navigate these challenges while maintaining their positions in a rapidly changing market.