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Chipiona Lighthouse, Chipiona, Andalusia, Spain
This lighthouse is a 19th century lighthouse that is one of the worlds tallest lighthouses. The 205-foot lighthouse serves as an aid to navigation off the south west coast of Spain.
Borkum Großer Leuchtturm, Lower Saxony, Germany
This lighthouse is an active lighthouse located off the northern coast of Germany. The lighthouse was built in 1879 and stands at 197 feet tall. It is the worlds 3rd tallest brick lighthouse.
*Feel free to send us your photos of Lighthouses to be featured in our weekly market observations. *
Huge IPO
Last Friday, one of the most anticipated initial public offerings of the previous 2-3 years occurred. CoreWeave (Nasdaq: CRWV) went public on Friday and is a major test for the IPO market. The New Jersey-based company is a cloud computing provider for artificial intelligence infrastructure providers. CoreWeave rents out access to hundreds of thousands of Nvidia graphics processing units to large tech companies including Meta Platforms, IBM, and Microsoft. Microsoft accounted for 62% of the company’s revenue last year. CoreWeave said its revenue grew by 737% last year to $1.92 billion in a filing last month. However, the company reported a net loss of $863 million.
CoreWeave raised $1.5 billion at $40/share in the transaction which reflects a market capitalization of $14 billion. The fully diluted valuation was $23 billion. Shares opened and closed on Friday much below the original price range for CoreWeave shares. Shares opened at $39 and closed at $40.
Originally CoreWeave had hopes of raising $3 billion or more at a higher valuation. According to insiders, CoreWeave downsized its offering in price and shares in recent weeks. Despite the soft demand and weaker valuation, CoreWeave is the largest AI-related IPO on record and the largest U.S. technology IPO since 2021. The entire IPO has dried up over the last 3 years as inflation and higher interest rates have deterred investors from making riskier bets. 2021 was the largest ever year for IPOs in the technology sector. Despite investor optimism after Trump’s victory for more deal-making, 2025 remains a sluggish year for IPOs.
During CoreWeave’s roadshow analysts and investors questioned the company’s reliance on Microsoft. Relying on one client is risky and in this AI race, you essentially are betting on Microsoft to be the winner in AI. The other worry from investors is the recent abandonment of data center projects from companies including Microsoft. As of now, Microsoft has not abandoned any project with CoreWeave. However, the recent trends in the industry could be troublesome for CoreWeave. Sell-side analysts have even started downgrading their ratings for CoreWeave citing numerous factors. The D.A. Davidson analyst covering the company stated that CoreWeave is essentially a special-purpose vehicle for Nvidia (Nvidia is a large investor in CoreWeave).
CoreWeave’s CEO said in a recent interview that the company’s new deal with OpenAI (valued at $11.9 billion) inked just weeks ago decreases their single client concentration many investors are worrying about.
CoreWeave is not like many startups, it’s saddled with debt as it requires substantial financing. In 2023, CoreWeave raised $2.3 billion in debt led by Blackstone and hedge fund Magnetar. Last year the company obtained over $7 billion in additional debt from Blackstone and other investors at a borrowing rate of about 11%.
The company was originally known as Atlantic Crypto when it was founded in 2017. It previously offered infrastructure for mining the Ethereum cryptocurrency but snatched up additional graphics processing units and changed its name and focus on AI as digital asset prices fell.
Fast forward to Monday and CoreWeave shares were down by 9%. It seems investors are selling out of this once-hyped AI story. We will watch this company moving forward, however, at this stage, there is way too much risk from our standpoint.
Set up for the elite
It seems more than ever that the “haves” continue to flourish while the “have nots” struggle across the West. The financial system has benefited the 1% more than ever in recent years. The ultra-elite and rich continue to increase their share of overall societal wealth. After COVID-19, inflation, soaring interest rates, and other economic uncertainties it’s no surprise the middle classes’ wealth has shrunk and the beneficiary of that has been the ultra-rich. According to the Federal Reserve, the top 1% of U.S. earners now have more wealth than the entire middle class. The FED classifies the middle class as earners between the 20th and 80th percentile of annual income (60% of the U.S. working population). This is the first time on record (data back to 1993) that this has occurred according to the FED.
If we were to guess, we would assume that the issue is similar in Canada, if not worse with the price increases that we have seen in the real estate market. Hopefully, something changes as this level of concentration of wealth often leads to broader issues or problems.
If you do not believe us that the 1% are doing better than ever, check out this headline out of New York.
New York City luxury real estate is booming. Manhattan apartment sales rose 29% during the first quarter and the total value of apartment sales reached $5.7 billion during the first quarter, a 56% increase year over year.
The strength has largely been driven by the high end of the market and luxury properties. Sales of apartments priced at over $5 million soared by 49% compared with a year ago, according to brokerage Compass. The ultra-high-end, or properties priced at $20 million or more, had its best first quarter since 2019, Compass said.
The ultra-rich tend to buy real estate in cash and often do not rely on mortgages. During the first quarter, this trend continued, over 90% of apartments sold with values greater than $3 million were purchased solely in cash.
This resurgence in the Manhattan property market is reportedly being driven by macro and micro forces according to brokers. Brokers believe the uncertainty in financial markets has made Manhattan real estate much more attractive (as well as other hard assets).
While the middle class continues to feel higher rates, uncertainty, and looming inflation, the ultra-rich are buying penthouses on Park Avenue.
OpenAI update
OpenAI, one of the worlds leaders in artificial intelligence that has been in the news consistently for a few years now have a few newsworthy items this week that we wanted to share.
First, the company closed on a $40 billion funding round, the largest private technology deal ever. The deal values the company at $300 billion. SoftBank, everyone’s favourite blank cheque investor led the round with $30 billion. The remaining $10 billion came from a syndicate of individual and institutional investors including Microsoft (a core investor in OpenAI).
The valuation puts OpenAI only behind SpaceX in terms of the highest current valuation for a private company.
OpenAI said it plans to use the capital to “push the frontiers of AI research even further” and scale its current infrastructure. $18 billion of the funding is expected to be used for Stargate, a venture announced by President Trump in January. Stargate is an American AI joint venture created by OpenAI, Softbank, and Oracle. The venture will invest $500 billion into American AI by 2029.
According to the details of this raise, Softbank can downsize its investment in OpenAI by December 31st if the company does not restructure itself into a for-profit entity. We have talked at length regarding the corporate drama surrounding OpenAI, its CEO, its Board, its investors, and its for-profit status. Our summary of it so far: it seems like a complete mess and very dramatic.
The company’s current and unusual hybrid structure includes a capped-profit limited partnership created in 2019. The original nonprofit is the controlling shareholder and would be spun out as an independent entity if the company can restructure.
The for-profit conversion would need to be approved by Microsoft, and the California attorney general. The conversion has been challenged online and in court by some OpenAI investors including Elon Musk.
SoftBank and other investors are betting that ChatGPT’s explosive growth can continue. OpenAI said Monday that ChatGPT now has 500 million weekly users, up from 400 million last month. OpenAI also expects revenue will triple to $12.7 billion by the end of this year. To say Softbank and the other investors are paying a premium for OpenAI would be an understatement, quite the forward sales multiple that bankers have slapped on this valuation.
The generative AI market is expected to reach $1 trillion in revenue within a decade.
If OpenAI were to ever IPO, it would most certainly be the largest.
The second piece of news we wanted to share regarding OpenAI concerns an investment the company made. This investment highlights a trend from companies across the world, a commitment to cybersecurity. It was announced that in March, OpenAI co-led a $43 million funding round in Adaptive Security, a cybersecurity firm. This is OpenAI’s first investment in a cybersecurity firm.
Adaptive Security simulates AI-powered attacks against companies, specializing in training for deepfake attacks and other phishing threats. AI powered attacks have been on the rise over the last year especially as AI continues to get more sophisticated.
The funding round’s other co-lead was Andreesen-Horowitz and other investors included K5, Abstract Ventures, and executives from Shopify, Google, and Workday.
Adaptive Security’s largest customers include the Dallas Mavericks, First State Bank, BMC, and more.
We continue to believe that cybersecurity at the right price will be a strong investment in the mid to long run. Think about how many people or companies that you know of who have experienced some sort of hack, or threat online. We bet the number is much larger than you think. Protecting data is crucial, particularly as AI becomes more advanced, due to the sensitive nature of the data we generate, store, and analyze. As AI’s capabilities grow, the potential risks and consequences of data misuse also increase. We think firms will continue to invest in this industry. Whether firms internally develop cybersecurity or pay a premium to acquire a company. We think in the midterm cybersecurity could be a hot industry. We will warn you, some of these companies are quite expensive in our eyes so now might not be the best time. However, if you can handle volatility and large drawdowns, there could be some massive upside in cybersecurity for a few names.
Tesla gets a catalyst?
Last week we highlighted the soft sales numbers for Tesla in Europe during the last few months, a few weeks earlier we highlighted the weakness they have seen in China. This weakness is not being seen by the entire industry; Tesla is rapidly losing market share across various industries. On Wednesday, Tesla released their first quarter vehicle deliveries. The headline number was 13% lower than last year and came in as their worst quarter since 2022.
The Texas-based EV group, led by Elon Musk, delivered 336,681 cars in the first quarter, far fewer than the 390,000 forecast by analysts and 387,000 in the same period last year. Tesla’s figure came in much lower than BYD during the quarter who reported sales of 416,388 electric vehicles.
Tesla shares sank as much as 6% on this news in early Wednesday trading. However, the trend reversed, and Tesla shares were up by more than 4% by lunch on Wednesday after it was reported from Politico that Musk would be taking a step back from his role within the Trump administration within weeks. The report came from a meeting between Trump and members of his cabinet.
Maybe all Tesla needed was for Musk to focus on it and not the government. Quite the catalyst event.
We will see in the coming weeks if investors buy this news and if this news has any validity.
Nasdaq-100 normalizing
After the recent drawdown of equity markets led my high multiple names and technology companies, the Nasdaq-100 is approaching its long-term price-to-earnings ratio.
The valuation drawdown that we have seen has been quite dramatic and could present a strong fundamental entry point for long term-oriented investors.
MacNicol & Associates Asset Management
April 4, 2025
The Weekly Beacon -April 4 2025
