NVIDIA-Backed CoreWeave Jumps 28%: Is It The Next Great AI Buy?

Key Points

• CoreWeave, a recently public stock with a big investment from NVIDIA, just saw a massive up move.
• The company's first earnings report as a public company was solid. However, a disclosure from NVIDIA really sent shares soaring.
• Despite its capital expenditures, is CoreWeave the next stock investors should bet on to take off, or should they temper their expectations?

Adding around $10 billion in market capitalization in less than a week amounts to a not-too-shabby few days at the office for the recently public company CoreWeave NASDAQ: CRWV. From May 14 to May 19, the stock gained over 28%. CoreWeave reported its first earnings as a public company on May 14, with analysts at JPMorgan calling the results "impressive." Yet, shares fell by over 2% the next day.

However, further news from CoreWeave and its Magnificent Seven backer, NVIDIA NASDAQ: NVDA, really allowed shares to explode to the upside.

So, what’s driving the big rise in shares in such a short period?

What do CoreWeave's results reveal about the strength of its business, and ultimately, does this stock truly represent an attractive opportunity going forward?

CoreWeave Reveals Massive Demand, But Also Massive Spending

Despite beating significantly on revenue growth expectations, the price action after CoreWeave’s first earnings report wasn’t all that inspiring. CoreWeave reported astounding sales growth of 420% from the previous year's quarter.

This was much higher than the 354% growth anticipated.

However, the company's net loss increased from $129 million in Q1 2024 to $315 million, contributing to the slight drop in shares. Analysts expected the loss to fall significantly. The company attributed this to multiple one-time or temporary events.

The biggest reason for the drop in shares was the company’s capital expenditure forecast for 2025, which came in at a midpoint value of $21.5 billion. This is over four times the $5 billion midpoint revenue the company predicts for 2025.

The company boosted its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) sixfold to $606 million. Its adjusted EBITDA margin also increased by around 600 basis points to 62%. This indicates that the company is making strong gains in operating profitability.

This is crucial for businesses that aren't yet fully profitable. Overall, the reaction to these results was highly underwhelming. However, reactions to further news in the days that followed were anything but.

NVIDIA Disclosure and Expanded Partnership Rockets Shares Up

Two key pieces of news came out on May 15, allowing shares to rise 22% on May 16. First, NVIDIA released its 13F filing. This revealed that as of March 31, NVIDIA held over 24.2 million CoreWeave shares. Overall, CoreWeave represented a massive 78% of NVIDIA’s total long public stock portfolio at that time. NVIDIA’s 13G filing revealed that it owned 7% of CoreWeave’s Class A shares as of March 31.

This was likely a huge reason for the stock’s rise, especially because NVIDIA’s stake in CoreWeave was previously 17.9 million shares. That means the company added nearly 6.3 million shares.

However, it is important to note that this information was already known. In late March, NVIDIA agreed to purchase $250 million worth of additional CoreWeave shares at $40 per share. Dividing these numbers gives one that 6.3 million share figure. Thus, this information only solidifies what was already known.

So, it's hard to say it warrants a 22% rise in the share price.

However, there was further news released that contributed to CoreWeave’s big gain. The company released its 10-Q filing on May 15 after trading hours. It shared details about a $4 billion expansion deal, which it alluded to on the earnings call. However, the customer’s name wasn’t mentioned on the call.

The 10-Q revealed that the customer was OpenAI. The headline of this expanded deal with one of the leaders in AI likely excited investors, contributing to the stock’s 22% one-day gain.

Analyst Price Targets Indicate a Possible CoreWeave Crash

Wall Street analyst price target updates tracked by MarketBeat after earnings paint a strange and intriguing picture. These targets range from $36 to $76, showing that the opinions on the future of this stock range widely. Additionally, although many of these analysts raised their targets substantially, all of them sit below CoreWeave’s nearly $87 closing price on May 19.

In fact, the average of these new targets is less than $61, implying a 30% downside in CoreWeave shares.

Overall, even though CoreWeave is experiencing massive demand for its products, it's hard to argue that overzealous investors aren’t getting ahead of themselves when it comes to this stock. Being associated with NVIDIA should not make this come as a surprise.

That’s not to say those same investors can’t push the stock to new heights, but it seems they may be playing with fire.