One analyst says investors seem to be taking issue with CoreWeave specifically, which he views as 'nothing more than a highly leveraged, off-balance-sheet arrangement for Nvidia'

CoreWeave Inc.'s initial public offering was met with jeers on Wall Street - but don't take that as an indictment on the artificial-intelligence trend more generally, according to some experts.

While investors are now more nervous about the sustainability of AI spending, that is not the main reason why CoreWeave ended up pricing its IPO below its original range, or why its stock failed to find any momentum after it began trading Friday afternoon.

Rather, Wall Street appears to be taking more of an issue with aspects of CoreWeave's business model and structure.

"CoreWeave should not be taken as an indication of the strength of the market for AI," D.A. Davidson analyst Gil Luria told MarketWatch. "It is nothing more than a highly leveraged, off-balance-sheet arrangement for Nvidia."

Shares of CoreWeave, which operates a large number of dedicated AI data centers, saw its first trade for $39 at 1:14 p.m. Eastern time - an opening that was more of a splat, versus the typical pop often associated with tech IPOs. Shares closed Friday at $40, even with the IPO price.

On Thursday night, the deal was priced at $40 a share for 37.5 million shares - a far cry from the initial plan to sell 49 million shares for between $47 and $55 a share.

"It's a tough company to value," said Matthew Kennedy, a senior IPO strategist at Renaissance Capital, which also has two IPO-focused ETFs IPO IPOS. Kennedy said there have been questions about how long CoreWeave would have its competitive moat, its high debt level, its customer concentration, its dual-class share structure, some insider selling last year and the big question of AI spending in general.

"All of these issues kind of mounted up and many investors just said, 'I will hold off and sit on the sidelines and see how it trades on the open market,'" Kennedy said. "I think if this had priced a month ago, it would have been a very different story."

Before CoreWeave's stock opened for trading, its executives appeared to be bullish and ebullient, ringing the opening bell at the Nasdaq COMP and gathering in Times Square for photos.

"Our bankers told us it [had] the most investor interest and the highest volume of meetings than they have ever scheduled for an IPO before," said Brannin McBee, one of CoreWeave's three co-founders and also its chief development officer, in an interview with MarketWatch before the stock began trading.

When the company's S-1 was initially filed, some IPO investors and analysts were surprised at the company's high levels of debt.

But McBee told MarketWatch that CoreWeave "did not really get any concerns about debt" during the roadshow.

"Software investors don't see debt on a balance sheet, but this is a new business paradigm," he said. "Once you are able to articulate that the debt is directly linked to revenue, they get it."

He added that 96% of the company's revenue is contractual, not from companies paying as they go for computing capabilities. The company also has been building out its data centers since right before the AI boom started. McBee said that's allowed CoreWeave to have many of the advanced requirements, such as liquid cooling, that customers will need when using Nvidia's Blackwell chip platform.

"You cannot retrofit an old data center," McBee said. "The data centers of the 2010s were designed to keep water out of the data center. ... The pace of change in this sector is so rapid, that is why our product has become so important."

CoreWeave has top AI companies as customers, including Microsoft Corp. $(MSFT)$ and OpenAI. Its large concentration of revenue from Microsoft, though, was cited as another concern among Wall Street observers.

The timing of CoreWeave's debut wasn't great, as it came on a day that the S&P 500 index SPX was dropped 2% and the Renaissance IPO ETF lost 2.5%.

The IPO also happened at a time when investors have come to question the high valuations for the biggest companies associated with the AI boom, including Nvidia Corp. $(NVDA)$

Back in January, cryptocurrency executive and blogger Jeffrey Emanuel warned Wall Street about a Chinese lab that created its own AI model called DeepSeek, which led him to conclude that there are lower-cost ways to run AI platforms, rather than using tons of the highest-end Nvidia graphics processing units. After he blogged about his thoughts, Nvidia saw a $600 billion loss of market capitalization in a single day.

Emanuel had concerns about CoreWeave as well, likening the company to WeWork and warning that it was at risk if big companies scaled back their AI spending. But that doesn't mean he's sour on AI in general.

"AI is real and is truly having a massive impact on everything," Emanuel told MarketWatch. But he is still believes the cost of AI is coming down, and U.S. companies like Nvidia and others are facing more competition from Chinese companies, including the open-source models from DeepSeek.

CNBC reported Thursday that CoreWeave partner and investor Nvidia was buying an additional $250 million worth of stock in the offering, in an effort to prop up the IPO. The company had already been an investor prior to the deal.

McBee declined to comment on any IPO participants, adding that "Nvidia remains a strong partner of ours."