Two Highly-Anticipated IPOs Offer Clues on What's Next for the Portfolio

When it comes to the Portfolio’s positions in Morgan Stanley MS and Bank of America BAC, one of the key aspects to our thesis is the expected rebound in investment banking activity.

The two best-known forms of that activity are M&A transactions and initial public offering (IPO) transactions, but we can’t forget about secondary debt and equity offerings. Despite investment banks touting their large pipeline of transactions, recent market turbulence has restrained the expected IPO rebound.

While the Portfolio does not partake in IPO offerings, there are signs that the IPO window could be opening once again. As these filed companies conduct their respective roadshows in the coming weeks and months, greater details about their businesses and, more importantly, their expectations will seep out. As important as the pricing of the IPO offering is, we will also be interested in the post-offering performance of the shares. The better that aftermarket performance, the more likely the IPO window will re-open and that will be a catalyst for MS and BAC shares.

High-Profile IPO for Nvidia-Backed CoreWeave

Near-term, the highest profile IPO is for Nvidia NVDA backed CoreWeave (CRWV), which filed its S-1 with the SEC two weeks ago. Perusing the filing, we find Morgan Stanley is one of the lead underwriters and the company, which sells AI-managed software and application services through its cloud platform and counts Cohere, IBM IBM, Meta META, Microsoft MSFT, Mistral AI and Nvidia as customers. The largest by far is Microsoft, which accounted for just under two-thirds of CoreWeave’s $1.9 billion in revenue last year. If you think that sounds a bit too concentrated, we are inclined to agree.

Contracts tend to run two to five years in length and the average committed contract length exiting 2024 stood at about four years. That explains the total deferred revenue near $4.1 billion coming into 2025. In terms of remaining performance obligations (RPOs), that stood at $15.1 billion at the end of 2024, compared to $9.9 billion at the start of the year. To that, we can add an $11.9 billion contract inked with Open AI last week, which should help with that customer concentration problem. Our preference would be to see even more on that front, but that could just be a matter of time given its deferred revenue and RPOs.

As of December 2024, the company had 32 data centers running more than 250,000 GPUs in total, and as the filing points out, “all of the GPUs used in our infrastructure today are NVIDIA GPUs.” This adds capital spending comments from CoreWeave to our must-watch list. On the power front, CoreWeave shared it has more than 360 MW of active power, but its total contracted power extends to approximately 1.3 GW, which hints at plans for further footprint expansion.

Like many such filings, CoreWeave’s contained industry forecast data that points to a bright road ahead:

"Bloomberg Intelligence, the market for AI inference/fine-tuning, AI workload monitoring, and training infrastructure, including AI servers, AI storage, training compute, cloud workloads, and networking, will increase by over $300 billion from 2023 to 2028, growing at a CAGR of 38% from approximately $79 billion in 2023 to approximately $399 billion by 2028. This market opportunity is expected to include $330 billion related to training infrastructure, which includes AI servers, AI storage, training compute, LLM licensing revenue, cloud workloads, and networking; $49 billion related to inference infrastructure; and $20 billion related to workload monitoring."

Of course, as we alluded to in Monday’s Daily Rundown video, Bloomberg Intelligence has since updated its AI spending comments. It now sees:

"A group of so-called hyperscale companies, including Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc., are projected to spend $371 billion on data centers and computing resources for AI in 2025, a 44% increase from the year prior, according to a report published Monday. That amount is set to rise to $525 billion by 2032, growing at a faster clip than Bloomberg Intelligence expected before the viral success of DeepSeek... While training-related spending is expected to make up more than 40% of hyperscalers’ AI budgets this year, that segment is expected to drop to just 14% by 2032, according to the report. By contrast, inference-driven investments could make up nearly half of all AI spending that year."

As we shared in that video, our thinking is that as we progress from early to mid-innings in terms of AI adoption, it will continue to drive digital infrastructure investment across data centers, networks and related equipment. That keeps us bullish on multiple holdings in the Portfolio, including Nvidia and Marvell MRVL.

Timing for CoreWeave’s IPO transaction, which is expected to raise around $4 billion, is speculated to be as soon as “later this month.”

Competition for IPO From Walmart-Linked Klarna

Late last week, buy-now-pay-later (BNPL) firm Klarna (KLAR) filed its IPO offering document with the SEC, and here too, reading that document gives us several things to consider.

Joint book runners for the offering are Goldman Sachs GS, JPMorgan JPM and Morgan Stanley with BofA in the mix as well. Given the rising concern over the consumer and spending trade downs, there could be a good deal of interest in this transaction, especially given the recent win with the addition of Walmart WMT as a customer.

It was recently disclosed that Klarna will provide loans to Walmart customers in stores and online through the retailer’s majority-owned fintech startup OnePay. That’s a nice win against Affirm AFRM, which saw Walmart drive 5% of its revenue in the back half of 2024.

Other Klarna partners include H&M, Saks, Sephora, Macy's M, Ikea, Expedia Group EXPE, Nike NKE and Airbnb ABNB. At the end of 2024, Klarna had 675,000 merchants as partners across 26 countries serving about 93 million active users. That mix generated $105 billion in gross merchandise volume last year and revenue of $2.8 billion.

As we see it the key for Klarna will be the continued expansion of its BNPL partner base and the adoption of BNPL by consumers. Should the economy slow dramatically or consumer spending in aggregate slide, volume concerns would likely emerge as well as consumer credit quality and credit risk.

Other High-Profile IPOs

Outside of those two high-profile announcements, other expected IPOs that are likely to garner market attention and news headlines are Stripe, mobile banking company Revolut, event ticket company StubHub, online bank Chime, medical supply company Medline Industries, analytics platform Databricks and AI chipmaker Cerebras.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long MS, BAC, NVDA, META, MSFT and MRVL.