CoreWeave is on the cusp of a huge IPO — but it could face an expensive hardware problem

• Rapid AI advancements may reduce the useful life of CoreWeave's Hopper-based Nvidia GPUs.
• CoreWeave has a lot of Hopper-based GPUs, which are becoming outdated due to the Blackwell rollout.
• Amazon recently cut the estimated useful life of its servers, citing AI advancements.

I recently wrote about Nvidia's latest AI chip-and-server package and how this new advancement may dent the value of the previous product.

Nvidia's new offering likely caused Amazon to reduce the useful life of its AI servers, which took a big chunk out of earnings.

Other Big Tech companies, such as Microsoft, Google, and Meta, may have to take similar tough medicine, according to analysts.

This issue might also impact Nvidia-backed CoreWeave, a startup that's planning one of the biggest tech IPOs in years.

CoreWeave is a so-called neocloud, specializing in generative AI workloads that rely mostly on Nvidia GPUs and servers.

Like its bigger rivals, CoreWeave has been buying oodles of Nvidia GPUs and renting them out over the internet. The startup had deployed more than 250,000 GPUs by the end of 2024, per its filing to go public.

These are incredibly valuable assets. Tech companies and startups have been jostling for the right to buy Nvidia GPUs in recent years, so any company that has amassed a quarter of a million of these components has done very well.

There's a problem, though. AI technology is advancing so rapidly that it can make existing gear obsolete, or at least less useful, more quickly. This is happening now as Nvidia rolls out its latest AI chip-and-server package, Blackwell. It's notably better than the previous version, Hopper, which came out in 2022.

Veteran tech analyst Ross Sandler recently shared a chart showing that the cost of renting older Hopper-based GPUs has plummeted as the newer Blackwell GPUs become more available.

The majority of CoreWeave's deployed GPUs are based on the older Hopper architecture, according to its latest IPO filing from March 20.

Sometimes, in situations like this, companies have to adjust their financials to reflect the quickly changing product landscape. This is done by reducing the estimated useful life of the assets in question. Then, through depreciation, the value of assets is reduced over a short time period to reflect things like wear and tear and, ultimately, obsolescence. The faster the depreciation, the bigger the hit to earnings.

Amazon's AI-powered depreciation

Amazon, the world's largest cloud provider, just did this. On a recent conference call with analysts, the company "observed an increased pace of technology development, particularly in the area of artificial intelligence and machine learning."

That caused Amazon Web Services to decrease the useful life of some of its servers and networking gear from six years to five years, beginning in January.

Sandler, the Barclays analyst, thinks other tech companies may have to do the same, which could cut operating income by billions of dollars.

Will CoreWeave have to do the same, just as it's trying to pull off one of the biggest tech IPOs in years?

I asked a CoreWeave spokeswoman about this, but she declined to comment. This is not unusual, because companies in the midst of IPOs have to follow strict rules that limit what they can say publicly. 

CoreWeave's IPO risk factor

CoreWeave talks about this issue in its latest IPO filing, writing that the company is always upgrading its platform, which includes replacing old equipment.

"This requires us to make certain estimates with respect to the useful life of the components of our infrastructure and to maximize the value of the components of our infrastructure, including our GPUs, to the fullest extent possible."

The company warned those estimates could be inaccurate. CoreWeave said its calculations involve a host of assumptions that could change and infrastructure upgrades that might not go according to plan — all of which could affect the company, now and later.

This caution is normal because companies have to detail everything that could hit their bottom line, from pandemics to cybersecurity attacks.

As recently as January 2023, CoreWeave was taking the opposite approach to this situation, according to its IPO filing. The company increased the estimated useful life of its computing gear from five years to six years. That change reduced expenses by $20 million and boosted earnings by 10 cents a share for the 2023 year.

If the company now follows AWS and reduces the useful life of its gear, that might dent earnings. Again, CoreWeave's spokeswoman declined to comment, citing IPO rules.

An important caveat: Just because one giant cloud provider made an adjustment like this, it doesn't mean others will have to do the same. CoreWeave might design its AI data centers differently, somehow making Nvidia GPU systems last longer or become less obsolete less quickly, for instance. 

It's also worth noting that other big cloud companies, including Google, Meta, and Microsoft, have increased the estimated useful life of their data center equipment in recent years.

Google and Microsoft's current estimates are six years, like CoreWeave's, while Meta's is 5.5 years.

However, Sandler, the Barclays analyst, thinks some of these big companies will follow AWS and shorten these estimates.