CoreWeave Inc. (NASDAQ: CRWV), continues to be in a strong uptrend as investors cheer on its 15-year leasing agreements with Applied Digital Corp. (NASDAQ. APLD).
Including the gains of today, artificial intelligence infrastructure company is well over 250% higher than its initial public offer (IPO) at $40.
Investors looking for the next Nvidia may be tempted to invest in CRWV because of its impressive growth and massive investor interest. However, closer inspection reveals that the company is running with borrowed fuel and is sprinting at full throttle towards growth.
CoreWeave’s fundamentals tell a disturbing story. They include soaring losses and extreme concentration of customers, as well as a capitalization structure that is built upon a shaky financial foundation.
CoreWeave, the AI infrastructure firm, may not be as vulnerable as it seems.
CoreWeave borrows and loses cash to expand.
CoreWeave’s net loss has more than doubled to $315 Million in the latest quarter reported.
What is the key factor? Interest costs, up 549 percent year-over-year at $264 millions.
The company is increasingly relying on asset-backed finance to fund their aggressive data centers, a strategy that’s inherently risky given the current rates environment.
The company has been guided to spend between $20 and $23 billion on capital projects in the year 2025, which is a huge sum that would dwarf its annual revenues by 5x.
CoreWeave spends more money than they make, then finance the gap by borrowing against physical infrastructure. This setup can quickly unravel if interest rates or cash flow falter.
The fragility of these cash flows is even more alarming. CoreWeave is dangerously consolidated: Microsoft accounts for 62% of the company’s revenue in 2024.
CoreWeave’s financial model may crack under pressure if one of their hyperscaler customers pulls back, or increases in-house capability. This could lead to a substantial decline in the share price.
CRWV’s shares are more expensive than Nvidia but with no profit
CoreWeave Inc. is now a behemoth worth $71 billion after today’s rally. It is still losing money and will not be profitable until 2026.
Even though analysts expect triple-digit growth to continue, the current AI stock valuation does not seem justified. Nvidia trades for about 39x its forward earnings and is profitable. It’s also dominant in AI hardware.
CoreWeave trades for a much higher multiple than that (forward sales). Some estimates put it at over 25x revenue in 2024, with negative profits and a heavy dependence on external funding.
In a world of zero interest rates, where money is easy to come by, such a valuation might make sense.
CoreWeave’s stock is a flyer in the current environment. Capital is costly and hyperscalers with deep pockets are a major threat.
Does it make sense to buy CoreWeave Stock?
CoreWeave stock may be soaring, but its fundamentals are showing cracks.
This is a dangerous act of high-wire with a small margin of error.
Investors who are interested in AI infrastructure can play it more safely.
If you don’t want to risk massive volatility or the possibility of a reverse, it might be time to start taking profits now before your engine gets too hot.
The ICD published the article CoreWeave Stock is on Fire: Get out Before Engine Overheats.
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