AI profits are still a mystery to investors. A new IPO filing holds clues.

Some of the early winners in the AI boom are the cloud companies that rent out servers—primarily Amazon.com, Microsoft, and Alphabet. But investors have had to take the promise of these so-called hyperscalers somewhat on faith—the economic value of AI cloud computing is obscured within the financial reporting of the tech giants, whose cloud units are mainly filled with traditional servers for websites, games, apps, and the like.

But there’s a new window into AI cloud growth, thanks to the recent prospectus for the initial public offering of CoreWeave, which is planning to list its stock on the Nasdaq under the symbol CRWV. CoreWeave’s only business is renting out AI servers. That’s currently a fast-growing but small portion of Big Tech’s business, though it seems to be the main thing investors care about. Given their focus, Big Tech investors should be thrilled by CoreWeave’s initial success.

CoreWeave started in 2016 as a crypto mining firm. After the 2018 bitcoin crash, it had to find a new use case for its idle servers, so it started renting them out for AI computing.

When ChatGPT made its debut in November 2022, CoreWeave was at the right place at the right time. CoreWeave is a pure AI play, perhaps even more than AI leader Nvidia. It has been a venture capital darling since the AI boom began, raising $2.2 billion, most recently at a $23 billion valuation in November, according to FactSet.

Now that CoreWeave’s financials for 2022 to 2024 are public, investors can see what it takes for the hyperscalers to run AI cloud services, unobscured by their consolidated reporting. And there is lots of good news, along with risks from the rapid pace of growth.

First, the good: For CoreWeave’s AI cloud business, capital spending is already productive—it’s adding to the bottom line. Capital expenditures are depreciated over the useful life of assets, four to six years in the case of networking equipment and servers. CoreWeave’s $863 million in 2024 depreciation helped to unleash $1.9 billion in revenue; both figures were up 737% from the prior year.

Meanwhile, the revenue stream is already profit rich. CoreWeave’s operating income rose to $324 million in 2024 from a loss of $14 million the year before. At the fourth-quarter annual run rate, the company has operating profit of $451 million off revenue of $3 billion—even weighed down by $1.5 billion in depreciation cost.

The math seen in CoreWeave’s financials helps to explain why Big Tech names like Amazon, Microsoft, and Alphabet’s Google are spending so many billions of dollars on capex: every dollar put into the AI cloud is quickly paying off thanks to high demand and rapid growth rates in the business.

This is likely what the hyperscaler cloud providers are seeing. What was a small part of their cloud services in 2022 is now growing at very high rates. Even though depreciation costs are rising quickly from all the capex of 2023 through 2025, these AI cloud units are likely already seeing operating profits.

The bad news: this is all a bit of a high-wire act. Depreciation costs will continue to rise as 2025 capex begins to get consumed. If revenue growth doesn’t keep up in 2026 for any reason, those operating profits could disappear quickly. It makes CoreWeave a high-risk, high-reward proposition.

The hyperscalers, though, can largely absorb that risk, and CoreWeave’s financials should make investors more comfortable about their massive AI outlays. It’s too soon to say if CoreWeave’s IPO will work out, but Big Tech investors can take solace in one thing from the filing: Just two years into the AI revolution, the cloud business is already generating real profit.

Write to Adam Levine at adam.levine@barrons.com