Updated Friday with market reaction:

Shares of CoreWeave Inc. fell more than 5% in their stock market debut Friday morning despite the company downsizing its offer and stock price late Thursday.

Investors had been closely watching CoreWeave Inc.’s initial public offering after it priced its shares at just $40, much lower than was originally anticipated.

The cloud computing infrastructure company, which trades under the ticker symbol “CRWV,” raised $1.5 billion in the sale Thursday evening, making it the biggest U.S. tech issue since 2021. Its offering was seen as a bellwether for investors’ appetite for IPOs, which have been in a deep freeze for years now.

CNBC reported that CoreWeave, which provides access to cloud-based graphics processing units for artificial intelligence workloads, had first targeted a price of between $47 and $55 per share. That would have valued it at around $26.5 billion based on the number of Class A and Class B shares outstanding and raised about $1 billion more.

However, the offering has been reduced from 49 million shares to just 37.5 million, according to one anonymous source quoted by Bloomberg, which was the first to report the $40 price. It means CoreWeave’s valuation will be closer to $19 billion, though its market capitalization will remain higher on a fully diluted basis.

According to CNBC, CoreWeave has still managed to attract some prestigious backers at that price, with Nvidia Corp. set to buy up $250 million worth of shares at the $40 price.

The company had been hoping to capitalize on the rising demand for AI computing resources and the broader trend that has seen investors throw billions of dollars at AI startups. Buoyed by its close proximity to a number of AI industry leaders, CoreWeave highlighted in its IPO prospectus how its revenue had jumped seven times in the last year.

But as investors looked more closely at the company’s business model, a number of concerns emerged. The company is reliant on two major customers that account for 77% of its total revenue, and it has estimated that it will need to spend billions of dollars in capital to keep up with Nvidia’s two-year GPU refresh lifecycle.

A report by London’s Financial Times earlier this week dented CoreWeave’s prospects when it said that Microsoft, which provides around two-thirds of its revenue, had gone back on some of its commitments due to issues around delivery and deadlines. CoreWeave pushed back, saying the report was “false and misleading,” but it only intensified concerns some investors have that big technology companies may be overspending on AI.

In the last few weeks, several analysts have noted that Microsoft appears to be scaling back on its data center investment plans. And last month, Amazon Web Services Inc., the biggest cloud infrastructure company of all, also appeared to reduce some of its near-term spending plans.

Investors also noted that CoreWeave’s capital spending plans cannot be funded by its existing revenue, even after it added OpenAI as its third major customer earlier this month. It’s currently sitting on $12 billion in debt, and that’s expected to grow to about $21 billion by the end of the year.

Writing in his column in The Information, the financial market analyst Cory Weinberg revealed that investors he has talked to have shared concerns regarding the proportion of CoreWeave’s revenue that’s tied to Microsoft and Nvidia. There are other alarm bells too.

“They worry about CoreWeave’s founders having sold so much stock already,” Weinberg wrote. “They worry about how much cash the company expects to burn.”

EquityZen analyst Phil Haslett told The Street there are also concerns about the broader macroeconomic uncertainties in the economy, plus questions about the strength of AI demand, putting the onus on CoreWeave to tell a more convincing story to investors.

“It’s a unique business model that needs to find the right positioning,” Haslett said. “Hyperscalers may decide to build out their own infrastructure (like Meta Platforms), but smaller tech companies could still need a scalable solution (that CoreWeave provides).”

CoreWeave’s decision to lower both its share price and the number of shares it plans to sell may be an attempt to find that positioning. But although the lower price may make its stock seem more enticing, it’s not clear if it will be low enough to convince market naysayers, and apparently there are a lot of them.

In his column, Weinberg said he had read the results of a confidential survey of 135 investors from an investment bank not involved in the IPO. It revealed that 90% of respondents didn’t believe CoreWeave had a “sustainable moat,” meaning they don’t consider it a sustainable long-term investment.

“One respondent summed up a broader perception about CoreWeave: ‘It’s radioactive, and I think every investor knows that,’” Weinberg wrote.

Holger Mueller of Constellation Research Inc. told SiliconANGLE the concerns over CoreWeave’s overexposure to Microsoft are justified, but believes there’s still a great market opportunity for a dedicated AI cloud platform if it gets the execution right.

“Without a firm commitment from Microsoft, it remains a risk, but it might still be worth a shot for some investors,” he added.

CoreWeave’s debut is being watched keenly by the wider tech industry, for the IPO is seen as a major test for the market’s readiness for a new wave of stock offerings. IPOs have been few and far between since 2022, with rising interest rates and soaring inflation dampening investor enthusiasm for risky bets. The last technology company that raised more than $1 billion through an IPO was Freshworks Inc. back in 2021, and last year, both Rubrik Inc. and Reddit Inc. raised about $750 million via their offerings.

In the wake of President Donald Trump’s election victory last November, many analysts said they expect to see renewed IPO activity. But the imposition of multiple tariffs has instead shocked the global economy, creating uncertainty that could dissuade investors from betting on new offerings.

A number of technology firms have filed to go public later this year, including the ticketing marketplace StubHub Inc., digital health startup Hinge Health Inc., financial platform eToro Inc. and the online lender Klarna Group Plc.

Image: CoreWeave