The Double-Edged Sword of CoreWeave: A High-Growth but High-Risk Investment in AI Cloud Computing
In recent times, CoreWeave, a newly public AI-focused cloud provider (NASDAQ: CRWV), has seen its stock soar due to its impressive 420% year-over-year revenue growth in the last quarter. However, despite this rapid growth, the company is still struggling to generate profits due to high operating losses and significant debt.
CoreWeave began its operations as a cryptocurrency mining operation but pivoted in 2019 to cloud computing using Nvidia graphic processing units (GPUs). This decision has positioned the company to take advantage of the growing computing demand from AI companies. By buying up the latest Nvidia computer chips, CoreWeave has been able to offer a cloud computing service specifically focused on AI, allowing it to operate more nimbly than larger players like Amazon Web Services (AWS). The company currently has an order backlog of $25.9 billion.
However, CoreWeave's rapid growth has come with a price. The company had a $27.4 million operating loss last quarter, and its balance sheet is loaded with $3.77 billion in current debt and nearly $5 billion in long-term debt. This debt had $264 million in net interest expense last quarter, or 27% of the company's revenue, and will be a significant headwind as the company tries to scale. Free cash flow is aggressively negative, with a $1.35 billion burn rate just in the first quarter of 2025, and the company needs to quickly scale up spending on its platform to stem this cash burn.
The valuation of CoreWeave's stock at over 30 times its trailing-12-month revenue is also a concern, as it will likely need to raise more money soon due to its heavy cash burn. The bottom line about CoreWeave stock is that it fits the classic definition of a high-growth stock that has just gone public. Investors are excited about how fast it is growing, but the company is operating aggressively with a huge cash burn that presents a risk to its viability if AI spending slows down or stops.
In summary, there are many ways for an investment in CoreWeave stock to go wrong. Rapid growth needs to continue, and a rapid transition to positive cash flow is necessary. If this does not happen, the stock is likely to perform poorly for investors in the coming years. Therefore, it is best to avoid buying any shares of CoreWeave at the current time. Instead, consider investing in one of the 10 stocks identified by The Motley Fool's Stock Advisor team as better options for your portfolio.
