6 days ago
CoreWeave earnings don't answer the big question bears are asking
CoreWeave (CRWV) stock is down double digits following the company's second quarter earnings miss.
Freedom Capital Markets managing director Paul Meeks examines what's fueling the huge decline, despite CoreWeave's revenue beating.
The strategist explains that the earnings print failed to answer the question that bears are asking, setting CoreWeave up to be what he calls a potential "profitless prosperity" company, as seen during the dot-com bubble.
To watch more expert insights and analysis on the latest market action, check out more Market Catalysts.
CoreWeave shares are sinking as widening losses in its second quarter overshadow AI demand growth. The data center company reporting a net loss of about $290 million, operating expenses ballooning to $1.2 billion, and only $318 million the year prior. Joining me now on this, Paul Meeks, managing director of Freedom Capital Markets. Good to see you, Paul. So, um as we see what's going on with CoreWeave here, there has been all through this earnings season the weighing of sort of the spend versus the demand. Why is CoreWeave getting punished like this when others who are spending a lot are not?
So, first of all, let me break some news for you. I understand Julie that you are being considered for a Fetcher.
I'm on the long, I'm on the long, long list, Paul. You're probably on there too.
So, as it pertains to CoreWeave, now remember CoreWeave started this month at a low of $102 per share. Before the print, it had closed at $149 per share. So maybe some comeuppins was in store. But even though the company has voracious demand, and their revenues reported were better than expected, and their guidance better than expected. The problem is, they did not answer the question that the bears have been asking for some time, is this company ever going to make any dough? Now, I was around during the deflation of the internet bubble, and we used to call some of these companies profitless prosperity. And that means you have great revenue, but you never bring it through to cash flow and earnings. I think CoreWeave is going to be just fine in the end, but the problem is I don't think you will see evidence that this is not a profitless prosperity company until they break even, and it won't be this year. It's probably sometime late next year.
Well, and remember the IPO was earlier this year at 40 bucks, it's trading at multiples of that. Um and so the the bump that we're seeing today, does it sort of drift lower from here? Or do you, do you see people piling back in on the hopes that it will eventually turn that profit?
I think it'll turn around, but uh, this is what I think happens. I think it could easily retest that 102, 103, 104 low base, and we weren't there that long ago. That was just the last couple of trading days of last month, the first couple of trading days of this month. So I own the stock as a privately held company, so I'm in at an outrageously low cost basis. But even for a new client that wanted to be in this stock, I'd wait to see if we get to around that $100 handle before I start to buy back the shares.
Gotcha, lucky you, by the way. And, and is there anything that is um doing a similar thing to CoreWeave, but doing it better than investors might want to look at?
I still think CoreWeave is the number one in the space. Uh, Nevius, which is essentially its counterpart in Europe could be interesting, but I still would probably go with the hyperscalers that have free cash flow and profits. And even some of these semiconductor companies, ala AMD and Nvidia, even though they have vaulted upward with their stock prices, probably over CoreWeave. But my favorite pick in all of tech continues to be Apple.
