Shares of CoreWeave (CRWV 3.90%) are falling on Thursday, down 16.2% as of 2:13 p.m. ET. The large drop comes as the S&P 500 (^GSPC 1.03%) and the Nasdaq Composite (^IXIC 1.20%) fell by 0.3% and 0.1%, respectively.
CoreWeave stock's sharp drop isn't really being driven by specific news from today; rather, it's a retreat from the stock's recent massive run-up. The stock was up nearly 50% this week before today's fall after the company announced several catalysts.
CoreWeave inks a key deal
CoreWeave, which provides cloud computing services to artificial intelligence (AI) companies like Nvidia and Microsoft, announced earlier this week that it has entered into a deal with Applied Digital to lease 250 megawatts of computing power for the next 15 years. The deal greatly expands CoreWeave's total capacity and ability to serve its customers.
CoreWeave appoints a new executive
On Wednesday, the company announced it has appointed Ernie Rogers as chief architect of strategic financing. Rogers will help CoreWeave continue to finance its rapid expansion. Michael Intrator, co-founder and CEO, explained in a statement that his "deep understanding of our business makes him uniquely qualified to help drive our next phase of growth."
There are reasons to be cautious
Image source: Getty Images.
CoreWeave's growth has been impressive, but I'm not sold on the stock. The company is highly leveraged and, with the recent appointment of Rogers, appears to be looking to add to this debt. This makes the company highly vulnerable to any disruptions in its growth.
This would already be cause for concern, but considering that CoreWeave's revenue is entirely dependent on just a handful of companies, the risk is greater. After all, its largest client, Microsoft, is a cloud provider itself. It's more than possible that CoreWeave sees a major disruption in sales that could handicap the company as it grows. Therefore, I would avoid CoreWeave stock.
