The "IPO meme stocks" Coreweave and Circle in the United States will face financial report scrutiny.

Author: Li Xiaoyin, Wall Street Journal

CoreWeave and Circle, riding the fast track of the AI and cryptocurrency craze, saw their stock prices soar after going public, becoming the hottest new stocks on Wall Street.

On Tuesday, these two major companies will face scrutiny from investors simultaneously. Since its IPO in March of this year, AI infrastructure company CoreWeave's stock price has soared nearly 250%; meanwhile, stablecoin USDC issuer Circle's stock price has surged fivefold since its IPO in June.

This is the second financial report after CoreWeave's listing and Circle's first report card. The significant increase driven by retail investors and momentum investors has pushed market expectations to a high level. Their performance will directly impact investors' confidence in the future IPOs of the two hot industries: AI and cryptocurrency.

Dean Quiambao, a partner at the accounting consulting firm Armanino LLP, stated that for companies in hot industries, the ability to meet the rising expectations will be key:

"These quarterly results are absolutely important because one of the reasons that hinders some companies from applying for an IPO is the lack of confidence in the predictability of their performance."

CoreWeave: Capital is the Key Challenge

Despite CoreWeave's growth momentum being driven by strong market demand for AI infrastructure, some analysts have expressed concerns about its ability to raise funds for projects. This has become a core challenge the company currently faces.

Analyst Gil Luria from DA Davidson & Co. stated in an interview:

“CoreWeave's main challenge now is to secure capital, as they need to be able to issue stock or raise more debt.”

In the report from the last quarter, the company stated that its capital expenditures this year will be between $20 billion and $23 billion.

However, according to media data, since then, the company has only announced raising $5 billion in debt funding. How to fill the huge funding gap will be the focus of investors seeking answers in the financial report.

Circle: The interest rate path determines the future

For Circle, its future revenue will largely depend on the direction of interest rates in the United States. The majority of the company's revenue comes from the interest generated by short-term U.S. Treasury bonds that back its USDC stablecoin (pegged 1:1 to the dollar).

This means that the Federal Reserve's monetary policy will be like a double-edged sword. On one hand, loose monetary policy will lead to lower interest rates, which will directly reduce Circle's interest income. On the other hand, lower borrowing costs may foster a risk appetite in the market, encouraging more investors to enter the cryptocurrency market where USDC is widely used.

Needham & Co.'s senior analyst John Todaro stated:

"I expect that, driven by loose monetary policies, speculative activities in the cryptocurrency space will increase."

He holds a "buy" rating on Circle, with a target price of $250, indicating that the stock still has a 55% upside potential.

IPO Momentum and Valuation Game

Since the beginning of this year, some newly listed companies have successfully dispelled investors' doubts about their high valuations with strong earnings reports, leading to further increases in their stock prices.

For companies like CoreWeave and Circle that are in "hot" industries, whether they can meet or even exceed the high expectations of the market is crucial.

Daniel Polsky, co-head of syndicate at William Blair & Co., pointed out that "momentum remains a very important part of the IPO and book-building process." He stated that a viable theme in the market this year is "starting with a reasonable valuation and discovering the price in a way that is most favorable to the issuer, thus driving subscriptions."

The successful listings of CoreWeave and Circle are a reflection of this strategy. During the marketing process of their stock offerings, they raised the price range and the scale of issuance multiple times, ultimately achieving great success due to the strong market demand.

The upward momentum driven by institutional enthusiasm and retail support helped them establish a foothold early in their listing.