CRWV Stock Crashes Post Q2 Earnings: Stay Invested or Make an Exit?
However, investors likely got unnerved by the company's aggressive expansion strategy, high leverage and near-term profitability, leading to a sell-off. This recent slump is bound to raise an inevitable question: Is it still worth holding, or is making an exit the smarter choice?
Let's unpack the company's recent results and the long-term prospects.
CRWV's Q2 Earnings Snapshot
Revenues in the second quarter were a record $1.2 billion, which beat the Zacks Consensus Estimate by 12.5% and jumped 207% year over year. The top-line performance was driven by demand for AI training and inference workloads, which continue to grow at breakneck speed, as businesses increasingly view AI as a strategic pivot.
CoreWeave recorded a series of major achievements, securing customer wins across AI labs, hyperscalers and enterprises like Hippocratic AI, Hologen, BT Group, Cohere, LG CNS, Mistral, Moonvalley, Novel and Woven by Toyota. Highlights included a $4 billion expansion with OpenAI, adding to the previously announced $11.9 billion deal and onboarding of a new hyperscaler customer that expanded within the quarter. Partnerships with Jane Street, Morgan Stanley, and Goldman Sachs are also noteworthy.
The company's market position is further reinforced by its $30.1 billion contracted backlog, up $4 billion from the first quarter and doubling year to date. Adjusted operating income was $200 million, up 134% year over year, while adjusted operating margin was 16%, down from 22%. Adjusted EBITDA was $753.2 million compared with $249.8 million in the prior-year quarter.
CoreWeave also deployed NVIDIA GB200 NVL72 and HGX B200 systems at scale, integrated into its 'Mission Control' for reliability and performance. It also expanded object storage offerings with automatic tiering and launched new offerings like CoreWeave and Weights & Biases Inference service. The new inference service supports a research-friendly API for OpenAI's new open-source model, Kimi K2, Meta's Llama 4, DeepSeek and QnA3. It is investing in SUNK (Slurm on Kubernetes) for large AI labs and enterprises and is now offering support for third-party storage systems (VAST, WEKA, IBM Spectrum Scale, DDN and Pure Storage) integrated into its technology stack with large-scale production deployments.
CRWV had nearly 470 megawatts (MW) of active power and contracted power of 2.2 gigawatts (GW) at the quarter-end. With over 900 MW of active power targeted by year-end, CRWV is positioning itself as a top-tier provider capable of meeting the needs of large-scale AI training and inference workloads. Key projects include a $6 billion data center investment in Lancaster, PA and another data center in Kenilworth, New Jersey, through a joint venture with Blue Owl.
Management has raised 2025 revenue guidance to $5.15–$5.35 billion compared $4.9 billion to $5.1 billion projected earlier, citing accelerating demand and a robust pipeline.
Why the Stock Dropped: A Look at Bearish Undercurrents
CoreWeave's growth strategy heavily depends on massive capital expenditures, with the second quarter capex coming in at $2.9 billion, an increase of $1 billion from the last quarter. The full-year guidance was reaffirmed at $20-$23 billion. CRWV expects capex for the third quarter to be $2.9 billion and $3.4 billion. Higher capex can be a concern if revenues do not keep up the required pace to sustain such high capital intensity, especially in a macro environment where AI demand cycles could fluctuate due to competitive pricing and regulatory changes.
CoreWeave's aggressive data center buildout is being funded in large part by debt. It has raised a staggering $25 billion in debt and equity since 2024. Interest expense surged to $267 million compared with $67 million a year ago. For the third quarter, it expects interest expenses to be between $350 million and $390 million, owing to high leverage. Higher interest expenses can exert pressure on the adjusted net income and potentially affect free cash flow generation and undermine near-term profitability. CRWV posted a net loss of $291 million and an adjusted net loss of $131 million, primarily due to heavy interest expenses.
CRWV also anticipates stock-based compensation to remain slightly higher in 2025 for the grants issued pertaining to the IPO. CRWV expects adjusted operating income between $160 million and $190 million (down from $200 million in the second quarter) for the current quarter due to the ramping of capacity to meet demand.
Moreover, there is intense scrutiny surrounding its C ore Scientific acquisition. Both acquisition and large data center projects entail execution and integration risks. Delays or any operational missteps could impact top and bottom-line numbers. Though it raised revenue guidance, adjusted operating income guidance remains unchanged at $800-$830 million for the year, suggesting rising costs will offset some of the revenue gains.
CRWV Faces Intense Competition
Moreover, CoreWeave faces tough competition in the AI cloud infrastructure space, which boasts behemoths like Amazon AMZN and Microsoft MSFT and other players like Nebius NBIS. Amazon Web Services and Microsoft's Azure cloud platform together dominate more than half of the cloud infrastructure services market, and are now aggressively moving into AI infrastructure. Microsoft's exclusive partnership with OpenAI gives Azure cloud the priority to access leading AI models like GPT-5, while AMZN is ramping up investment to build its technology infrastructure, primarily related to AWS and for custom silicon like Trainium.
Nebius is another upcoming AI hyperscaler with hyper revenue growth of 625% in the last reported quarter. It plans to secure 220 megawatts of connected power (either active or ready for GPU deployment) and this also includes data centers in New Jersey and Finland. The company is also finalizing two new large-scale greenfield sites in the United States. NBIS plans to build out over 1 gigawatt of power capacity by 2026.
Customer concentration is another major risk. CoreWeave's 77% of total revenues in 2024 came from the top two customers. This is a serious concern, especially if the client migrates, as the revenue impact could be material. Apart from this evolving trade policy, macro uncertainty and volatility remain additional headwinds.
Given these aforementioned headwinds, there has been a downward revision for CRWV's earnings estimates in the past seven days.
Lofty Valuation for CRWV
Valuation-wise, CoreWeave seems overvalued, as suggested by the Value Score of F. In terms of Price/Book, CRWV shares are trading at 25.06X, way higher than the Internet Software Services industry's ratio of 7.09X, but it could mean more risk than opportunity.
Conclusion: Offload CRWV Stock
For now, CRWV remains a high-risk, high-reward AI infrastructure play. The company's explosive growth and robust backlog are compelling, but near-term risks are substantial. CoreWeave's heavy customer concentration and ballooning capex pose risk, especially if revenues fall short. Elevated interest expenses and continued dilution from stock-based comp add further pressure on margins. Tremendous competition from Azure, AWS and Google Cloud and stretched valuations are other concerns.
With a Zacks Rank #4 (Sell), investors would be better off if they offloaded CRWV from their portfolios.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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