Tariffs, cars and CoreWeave IPO

Sentiment remains sour due to intensifying tariff talk. The carmakers around the world got hammered this week as the ones that produce their cars outside the US will cost 25% more if the levies go live – and nearly half of vehicles sold in the US are reportedly assembled elsewhere – and, the ones that are made in the US have at least 20% of their components coming from outside the US. Evercore ISI predicts that US car prices will likely increase by $3000-4000 on average while cars

Of course, the global ramifications are immense and the selloff is intense. GM lost more than 7% yesterday. The South Korean Kia Motors lost more than 7.5% from the peak of the week and the Japanese Honda lost more than 9% since the peak of the week. It is quite disquieting to see traditional carmakers lost that much of their value in a few hours. The European carmakers posted smaller losses because the tariff threats are already priced in since a while. iShares Stoxx 600 Automobiles & Parts ETF is down by almost 14% since the February peak, while the index saw a smaller pullback posterior to a remarkable rally on spending euphoria. Gold is unsurprisingly pushing higher into uncharted territories, and the overbought market conditions don’t matter when the geopolitical headlines are so aggressive. Investors buy gold each time they hear the word ‘tariff’.

And April 2nd – aka the Liberation Day – when the US is expected to announce its reciprocal tariffs is the next event to watch. It’s hard to be optimistic when we know that retaliation will emerge and uncertainties will continue with possible retaliation.

Retaliation and the extent of retaliation will determine the next direction of the US dollar. Trump naturally wants to limit response to his tariffs – he threatened Europe and Canada that he would impose higher tariffs if they teamed up to counter the US pressure. But the US dollar gave back a part of the recent gains yesterday hinting that the market favours the scenario of retaliation. Retaliation would hit the US exports in return, hit the US economic growth, boost inflation, hence boost the stagflation risks. The Federal Reserve (Fed) could step in and give support, but the tariffs – and the tariff uncertainty – will inevitably pressure earnings, impact capex plans and could further hurt the US equities before a potential Fed-backed relief.

Elsewhere, the Stoxx 600 has consumed the energy from government spending plans and is now facing earnings pressure from tariffs, as well. The Stoxx 600 index tipped a toe below its ytd ascending channel base yesterday and could well extend a correction into 520 – that would be another 4.5% retreat. The S&P500 could retest the 5500 level in the next wave of selloff, and Nasdaq 100 could break below the 19000 level in case of a worsening risk selloff. The rapid correction of the US Big Tech valuations has already caused up to 20% selloff from the November peak. Even encouraging and positive news from the tech and AI are unable to find a good spot on the international scene to turn the tables around.

Good luck, CoreWeave

So, it is in this difficult market setup that CoreWeave, the Nvidia-backed cloud computing specialized in AI, will start trading today on the Nasdaq stock exchange. The timing of the IPO is clearly not ideal as the AI-related stocks have experienced a significant pullback in their valuations on the back of various factors including tariff uncertainty, the rising Chinese competition, but also on rising fears of oversupply in AI versus the demand that didn’t grow as fast as previously forecasted. Investors have been sensitive to the idea that the AI spending went ahead of itself and demand is not following.

CoreWeave had to lower its IPO ambitions yesterday and pulled its expected valuation lower due to a weaker-than-expected reception during its roadshow. The company was planning to sell 49 million shares priced between $47 and $55 each, aiming to raise up to $2.7 billion and achieve a valuation of approximately $32 billion. But it will finally settle with a sale of 37.5 mio shares at $40 each and aim to raise around $1.5bn. That would value the company to $23bn instead of $32bn.

To justify the revised valuation, the company’s revenue should grow by more than 25% annually each year for a decade. That’s comparable to growth that Microsoft’s and Amazon’s data centers printed over the past years, but that growth also left investors with a doubt of oversupply.

As per Coreweave, the company printed an incredible performance last year; their revenue rose more than 700% to above $1.9bn, but reported a net loss of around $860mio last year. The huge debt that the company accumulated – almost $13bn over the past two years – should be partly paid back in the next years. As such, the way investors will welcome the company will tell a lot about whether they are still focused on impressive growth potential of AI enablers, or they are more concerned about slowing growth to avoid oversupply.