CoreWeave stock rises fast with AI growth and Microsoft support, but faces risks from share sales and big deal
Inc., a computing-services company, is gaining attention because of the growing demand for artificial intelligence (AI) computing power. Its shares jumped 35% in less than two weeks by Monday's close, following Microsoft's announcement to increase spending on AI infrastructure.
Microsoft is CoreWeave's biggest customer, and its investment helped ease worries that CoreWeave's stock price was rising too fast compared to the company's actual growth. On Tuesday, CoreWeave's shares continued to rise, gaining up to 2.9%. Tejas Dessai, director of research at Global X ETFs, said the situation is very positive for CoreWeave, noting that the AI business is growing quickly, as per the report by Bloomberg.
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AI growth boosts CoreWeave's revenue and stock price
Wall Street expects CoreWeave to report $1.1 billion in revenue for the second quarter, which is 174% higher than the same period last year. Despite growing revenue, CoreWeave is not yet profitable and is expected to lose 19 cents per share in this quarter. This is worse than a 2-cent loss a year ago but better than a 60-cent loss in the first quarter, as per the reports.
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CoreWeave's market value rose from under $20 billion at its IPO to nearly $90 billion in June but has dropped over 20% since then. Still, the stock is up about 250% since March's IPO. The company is not expected to be profitable on an adjusted basis until late 2026. Its stock price is high compared to sales, trading at 7.5 times estimated sales, while the Nasdaq 100 trades at 5.6 times estimated sales, as stated by Bloomberg report.
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Due to its high valuation, many investors are betting against CoreWeave's stock. Over one-third of its available shares are sold short, meaning investors expect the price to fall. Large tech companies like Google, Amazon, and Meta are increasing their spending on computing infrastructure, which could benefit CoreWeave.
Big tech spending grows, but CoreWeave faces investor concerns
Alphabet recently raised its capital spending forecast for 2025 by $10 billion to $85 billion. The top four tech companies plan to spend about $350 billion combined this fiscal year. Citigroup raised CoreWeave's stock rating from neutral to buy on July 31, citing rising AI demand across the industry. Analyst Tyler Radke expects CoreWeave to beat second-quarter revenue estimates, according to the report by Bloomberg.
However, Radke is an outlier; out of 24 analysts tracked by Bloomberg, only five recommend buying CoreWeave, 16 suggest holding, and three advise selling. CoreWeave is planning to acquire Core Scientific Inc., a data-center operator, in a $9 billion all-stock deal. This raised concerns about share dilution and the stock's high valuation, says reports.
Analysts lowered their ratings after the acquisition was announced in July. A share lockup expiration on August 15 could allow investors holding over 80% of Class A shares to sell their shares, which might cause short-term selling pressure. Larry Tentarelli, founder of Blue Chip Daily and a long-term bull on CoreWeave, said the stock is difficult to understand and volatile because it is still new on the market, as mentioned in the report by Bloomberg.
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CoreWeave faces challenges despite growing interest
Other tech news includes China advising companies not to use Nvidia's H20 processors, affecting Nvidia's sales in China. US President Donald Trump indicated he might allow Nvidia to sell a limited version of its advanced AI chip to China. Elon Musk criticized Apple's App Store, accusing it of favoring OpenAI, as per reports.
SoftBank Group's shares rose 8% due to optimism about its focus on AI. Micron Technology raised its revenue and earnings forecast for the fiscal fourth quarter, helped by better pricing for key products. CoreWeave is scheduled to report second-quarter earnings on Tuesday afternoon, as per the report by Bloomberg.
FAQs
Q1. Why is CoreWeave's stock price rising quickly?
CoreWeave's stock is rising because of strong AI demand, Microsoft's big investment, and increased spending by major tech companies.
Q2. What risks does CoreWeave face with its stock?
CoreWeave faces risks from possible share dilution due to a $9 billion deal and many investors selling shares soon.
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