CoreWeave offers AI customers what they greatly need today: access to capacity.
This has resulted in soaring revenue quarter after quarter.
CoreWeave (NASDAQ: CRWV) was one of last year’s biggest artificial intelligence (AI) success stories, and the company’s revenue strength continues. The cloud player launched its initial public offering about a year ago and soared more than 300% over just a few months. Investors got excited about CoreWeave’s triple-digit revenue growth and the high demand for its services. Its close relationship with AI giant Nvidia also fueled optimism about the company’s market potential.
Revenue growth, AI demand, and the partnership with Nvidia continue. But in recent times, CoreWeave lost some of the positive momentum. Late last year, concerns about a possible AI bubble weighed on performance, and just recently, following CoreWeave’s earnings report, the stock stumbled. In fact, it fell 18% in just one trading session.
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After this drop, is CoreWeave a stock to avoid or a once-in-decade buying opportunity? Let’s find out.
Image source: Getty Images.
Before diving in, let’s take a quick look at CoreWeave’s business model. The company invests in graphics processing units (GPUs), specifically from Nvidia, to offer to customers seeking to run AI workloads. This way, these companies don’t have to build out their own infrastructure. The decision to turn to CoreWeave clearly saves them time and may save them money, too; building out data centers is time-consuming and costly.
So, in a world where companies are rushing to apply AI to their needs, it’s not surprising to see many rushing to CoreWeave for capacity. In its latest earnings report, CoreWeave said it reached $5 billion in annual revenue faster than any other cloud company in history. That’s as revenue rose more than 160% year over year.
CoreWeave said it increased the number of customers spending $1 million or more on its cloud by almost 150%. And customers also have expanded their use of CoreWeave into data storage, too, with 80% of these million-dollar cloud customers also signing on for at least one storage product.
Importantly, CoreWeave has more than $66 billion in contracted revenue backlog, so there is much demand to be served in the quarters to come.
So, considering all of this positive news, why did the stock fall following the report? CoreWeave is a highly leveraged company, as we can see through its debt-to-equity ratio — the higher the ratio, the more the company is funded by debt instead of equity.
CRWV Debt to Equity Ratio data by YCharts
And now, to serve soaring demand, CoreWeave is investing heavily, a move that investors may see as risky for an already highly leveraged player.
During its earnings call, CoreWeave said 2026 capital spending will reach at least $30 billion — that’s twice the level of last year’s capex.
It’s important to consider that CoreWeave’s spending isn’t random; this enormous boost in capex is to serve customers that already have signed on for compute.
“The vast majority of our intended capital deployment is to directly support this long-dated contracted demand,” said CoreWeave chief executive officer Michael Intrator.
This suggests that CoreWeave isn’t overbuilding and that buildout will translate into revenue. Meanwhile, last fall Nvidia made a move that may reassure investors. The company agreed to buy any unused capacity from CoreWeave through April 2032.
Of course, CoreWeave still involves some risk. The company relies considerably on debt to advance, and though the future of AI looks bright, it’s still a newish technology — that means we can’t be 100% sure about what the landscape will look like a few years from now. Meanwhile, other cloud companies, from giants such as Amazon to smaller specialized players like Nebius Group, represent competition. (Though demand for compute is so high these days that there’s plenty of room for all of these players to generate growth.)
So, is CoreWeave a stock to avoid or a major buying opportunity? If you’re a cautious investor, now isn’t the time to jump into the CoreWeave story, due to the risks I mentioned above and the fact that the company hasn’t yet reached profitability. But, if you’re an aggressive investor aiming to get in on potential long-term AI winners, CoreWeave may offer you a once-in-a-decade buying opportunity right now.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
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