OpenAI Drops $12B on CoreWeave, Catching Microsoft Off Guard

0:00Today on the podcast we're talking about a multi-billion dollar deal that is happening in the AI space and that involves CoreWeave and OpenAI. Now this is a fascinating combination and partnership that OpenAI has recently done. I'm going to be getting into all of that, why this might be fraying the relationship of OpenAI and Microsoft and what CoreWeave plans on doing with this essentially as they're positioning themselves for what is, you know, a lot of people are saying is a$4 billion IPO coming up. So we're going to get into all of this. Before we do, if you've ever wanted to grow and scale your company using AI tools or your career level it up with AI tools, you need to join the AI hustle school community.

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1:09There's over 300 members that are all sharing what they're doing, getting great feedback. It's an amazing group. All right, let's get into what is going on. So OpenAI is pouring $12 billion into CoreWeave. This is a colossal amount. I mean, if you remember, OpenAI originally took$10 billion from Microsoft a couple of years ago for like 50 % of the company. And that was like massive groundbreaking news and now they're putting 12 billion dollars into another company so what exactly does core weave do why are they doing this what's going on this is actually a five-year um 11.9 billion dollar agreement just a little bit shy of the 12 billion dollars but core weave is a gpu heavy cloud service provider um which essentially allows you to use gpus on the cloud.

2:00So OpenAI could, you know, if they're trying to train a ton of AI models, they don't have enough GPUs, they don't have enough infrastructure, they could go and use something like CoreWeave to help them do this. And this is really interesting and strategic because just recently, I think like a week or two weeks ago, Sam Allman said, we are running out of GPUs, we don't have enough GPUs. He said in the past months, he's concerned that Elon Musk's XAI has access to more GPUs than him because I think they kind of relied on like sharing with Tesla and SpaceX and they did some other like clever things to get a whole bunch of GPUs in there to train and this is making OpenAI concerned like this is a you know a threat to their business if other companies are able to get larger amounts of GPUs so they're making big partnerships and beyond just making a partnership they're directly investing into this company so that you know people know or so that they have access I would assume to priority from CoreWeave's GPU and their cloud service provider.

2:57Now, what's interesting here is OpenAid isn't the only competitor and up until now wasn't even their biggest customer. So before this actually happened, Microsoft accounted for about 62 % of CoreWeave's revenue. This is just last year, 2024. And what's incredible is that the revenue grew to$1.9 billion. That's about 8x what it was in 2023, which was$228 million. So this is obviously a massive deal and CoreWeave just filed to go public last week. So it hasn't priced or scheduled when it's going to go public or priced out exactly what it's going to go public at. People are speculating it's going to be a$4 billion IPO.

3:37This is fascinating. And this isn't a company that is just kind of come out of obscurity. They're backed by NVIDIA. NVIDIA owns about 6 % of CoreWeave. And essentially, this is an AI specific. So they really focus on AI, cloud service provider they have a network of about 32 data centers at this point now this is a company i've been talking about on the podcast for years because they keep raising these eye watering rounds of funding they're definitely a massive player in the space and a lot of people are using them to help train their ai models um but they are currently operating over 250 000 video gpus now if i remember correctly this is similar to what you know grok ai has under management.

4:16I'm trying to remember if they have, well, I think they have 200 ,000. And so for one company to get their hands on this many is very, very impressive. And this is as of the end of this year. And then the thing that CoreWeb's doing is they're kind of just like renting them out. So people need them, they use them, and it's just like usage base. So since then, NVIDIA has added a bunch more GPUs since the end of last year, 2024 at 250. So I'm not sure the exact number now, but they've also added NVIDIA as the latest product, which is Blackwell. And essentially what this does is it's just supporting the AI reasoning.

4:49It's kind of the newest product. So the issue here that everyone has been talking about is, okay, fantastic,$1.9 billion, 8x growth since like the year before. This is amazing. This is exactly what you want to see in a company. But the thing that really kind of scares investors is 62 % of the revenue is coming from one customer, Microsoft. So for any reason, Microsoft said, hey, look, we don't like the company or we found a better place or we're going to do this all in-house. That's, you know, 62 % of all their revenue. They're down because of one customer walking away. So this is not good, right?

5:24That's to be down to 38 % of the revenue total. And then, yeah, not great at all. So what's really interesting is now we have OpenAI coming in and actually paying them this multi-year deal, tons and tons of money,$12 billion over five years. So it's, you know, obviously not all at once. I feel like we see a bunch of these deals, you know, when Amazon or AWS is investing in Anthropoc, they did it over multiple years. They want them to hit different benchmarks. There's like a bunch of different things. They don't just get it all at once. And partially this is because I would assume for OpenAI to get approval and financing for a deal like this, they don't have$12 billion cash in the bank.

6:04And so they're just like essentially borrowing money for this IOU based off of future growth projections that they have. and those I'm really curious what those future growth projections are especially as OpenAI has been recently talking about having this like$20 ,000 AI agent that they're going to be pumping out and a$10 ,000 and a$2 ,000 AI agent a month so like a$20 ,000 a month AI agent that can do a you know PhD research and all this other stuff so what's really interesting is I'd be super curious what their financial projections are what they think they can make and kind of what the terms of their debt or their financing they need in order to pay this money or what percentage they give in cash and etc etc so very very interesting regardless not only is open ai now going to have access to the same cloud that microsoft has been using but they also are going to actually have some ownership in this and this is right open ai microsoft has a sort of frame relationship people are calling them frenemies they say their relationship is deteriorating and this is because there's a bit of a competition going on and OpenAI uses Microsoft and Microsoft Azure is their cloud provider.

7:15If Microsoft is going and using CoreWeave to get access to more GPUs, presumably, it's like OpenAI, you could imagine, might even be getting access to CoreWeave through Microsoft, so it'll just go directly to it, which breaks down Microsoft's revenue, blah, blah, blah, blah, makes a lot of sense, but you could imagine Microsoft isn't super happy about it. So Microsoft, of course, big backer of OpenAI, put a ton of money in. And now, you know, there's some shaky grounds because they're kind of competing directly. OpenAI competes directly for Microsoft's enterprise customers. And back in January, when OpenAI announced their big Stargate AI infrastructure deal that they're doing with like SoftBank and Oracle, Microsoft stopped being OpenAI's only cloud provider.

7:59They started working with Oracle, and now they need more compute resources, right? So they're saying they're out of GPUs, and so this might be a great way around it. But this isn't just, you know, OpenAI getting under Microsoft's skin and kind of cutting at their customers. Microsoft is, you know, developing the same things that OpenAI has. They're developing their own AI models, and currently they're developing their own reasoning models, just like OpenAI has. So, like, they're both very much competing with each other head-to-head, even though they're, like, friends, and they have a great partnership.

8:29um open ai went and hired sam altman's rival mustafa sulliman because mustafa sulliman was running inflection pi which was a direct competitor to chat gpt they hired him to be the head of microsoft ai um and now is building microsoft's own in-house version of chat gpt which is going to compete directly with them especially with these new reasoning models they have coming up so core weave is sort of a you know a chess move in all of this and what's interesting about the company core weave is this was founded by a bunch of hedge fund um guys it actually started out as a crypto mining operation so they were using all these to mine crypto and then when ai came out they're like hey well why don't we just rent these out to people that are trying to train ai models they have all this infrastructure so it makes a lot of a lot of sense but this is a very costly business to get into so there's three co-founders and what's interesting is of all the money they've raise, they have already cashed out about$480 million worth of shares.

9:27So that's over$150 million each for the three co-founders that they've pulled out. So they are doing quite well right now. And what's really astounding is that CoreWeave has about$7.9 billion of debt. Now, of course, this isn't just like a software company that needs to raise money to pay developers to make software or providers. This is a company that is building data centers, buying GPUs. So $8 billion of debt on their books isn't astounding. That's just what it costs for what they've been able to build. They're hoping that this new IPO is going to make a ton of money, billions of dollars in new capital that essentially they're going to use to pay down a punch of their debt, which I'm assuming with interest rates today is not.

10:12It's pretty painful, I would imagine, to make interest payments on$8 billion of debt at today's interest rates. So they're going to try to do an IPO. raise a bunch of money and pay down some of that debt which is really fascinating um what's interesting is the the three founders were at one point trying to use gpus to you know create money mine crypto and now they're apparently accomplishing this except not necessarily crypto but they're renting them out and making money uh you know they're minting money with their gpus so it seems like they have accomplished their mission i'll keep you up to day on everything going on with this is obviously a colossal deal 12 billion dollars to core we've really excited to see where the ipo goes i'll definitely be reporting on how much money they raise what the pricing is what the schedule for this thing to come out and once it launches how the company is doing um absolutely fascinating spot and very very big company in the ai space thanks so much for tuning in make sure to join the ai hustle school community if you want to learn how to use ai tools to boost your business and career and also if you want to join a amazing community of people using AI to create side hustles, to grow their businesses, and to grow their careers.

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