CRWV Stock Jumps 209% in 3 Months: Hold Steady or Make an Exit?
With its GPU-based cloud solutions tailored for AI workloads, CRWV is well-positioned to gain from the AI infrastructure boom. Strategic partnerships with major players like OpenAI and NVIDIA bode well along with massive $259 billion revenue backlog. The company has outpaced its peers like Nebius Group N.V. NBIS, Microsoft MSFT and Amazon AMZN. Nebius, Microsoft and Amazon shares have gained 107.6%, 30.4% and 25.3%, respectively, in the same time frame.
Price Performance
However, the stock has declined sharply post its announcement of $9 billion takeover of Core Scientific. Since the announcement on July 7, CRWV has lost 21%. This recent slump is bound to raise an inevitable question: Is it still worth holding or making an exit is the smarter choice?
Let's break down the key advantages and potential risks to help determine the smartest move for your portfolio.
CRWV Faces Headwinds
Apart from scrutiny surrounding the company's latest acquisition bid, it also faces other headwinds. CRWV's aggressive capital deployment strategy is a key concern. CRWV expects capex to be between $20 billion and $23 billion for 2025 due to accelerated investment in the platform to meet customer demand. 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.
The company uses a success-based model, entering capex programs only after securing multi-year customer contracts that cover investment costs within the contract terms, helping it to sensibly scale the debt structure. High capex, even with a success-based model, exposes CoreWeave to execution risks if contract revenue does not materialize on time.
CoreWeave's aggressive data center buildout is being funded in part by debt. In the last earnings call, management acknowledged a surge in interest expenses. In the first quarter, interest expense came in at $264 million, topping expectations. This was attributed to changes in vendor payment terms. The company now guides interest expense to remain elevated, at $260-$300 million in the current quarter. Higher interest expenses can exert pressure on the adjusted net income and potentially affect free cash flow generation.
Owing to high interest expenses, CoreWeave's adjusted net loss increased to $150 million in the first quarter, compared to $24 million in prior year quarter, despite achieving 420% revenue growth.
CRWV also anticipates stock-based compensation to remain slightly higher in 2025 for the grants issued pertaining to the IPO.
CoreWeave faces tough competition in the AI cloud infrastructure space, which boasts behemoths like Amazon and Microsoft and other players like Nebius. Amazon Web Services and Microsoft's Azure cloud platform together dominate more than half of the cloud infrastructure services market. Nebius is another upcoming player with hyper revenue growth of 385% in the last reported quarter.
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, 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 massive downward revision for CRWV's earnings estimates in the past 60 days.
Image Source: Zacks Investment Research
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 31.69X, way higher than the Internet Software industry's ratio of 6.54X, but it could mean more risk than opportunity. The recent rally suggests that a lot of future growth may already be priced in.
Image Source: Zacks Investment Research
Conclusion: Offload CRWV Stock
CRWV currently carries a Zacks Rank #4 (Sell).
For investors who have ridden the recent wave, it may be wise to lower exposure and lock in gains, especially given the high expectations already factored into the stock price.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They include
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.
Download Atomic Opportunity: Nuclear Energy's Comeback free today.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Nebius Group N.V. (NBIS): Free Stock Analysis Report
CoreWeave Inc. (CRWV): Free Stock Analysis Report
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