Investing in today's stock market can be tricky given the volatile macroeconomic climate, fueled by the Trump administration's ever-shifting tariff policies. But the artificial intelligence sector remains a robust investment opportunity as organizations around the world race to build artificial intelligence (AI) capabilities.
Consequently, AI stocks provide the potential for great gains. One example is CoreWeave (CRWV 11.49%). The company went public in March at $40 per share.
Since then, CoreWeave stock soared to a 52-week high of $166.63 in June. This hot stock remains more than triple its IPO price at the time of this writing. Can it go higher?
Evaluating whether now is the time to grab CoreWeave shares requires digging into the company and unpacking its potential as a good investment for the long haul.
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Reasons to consider CoreWeave stock
CoreWeave delivers cloud computing infrastructure to businesses hungry for more computing capacity for their AI systems. The company operates over 30 data centers housing servers and other hardware used by customers to train their AI and develop inference, which is an AI's ability to apply what it learned in training to real-world situations.
AI juggernauts such as Microsoft, IBM, and OpenAI, the owner of ChatGPT, are among its roster of customers. The insatiable appetite for AI computing power propelled CoreWeave's business. The company's first-quarter revenue rose a whopping 420% year over year to $981.6 million.
Sales growth shows no sign of slowing down. CoreWeave expects Q2 revenue to reach about $1.1 billion. That would represent a strong year-over-year increase of nearly 170% from the prior year's $395 million.
The company signs long-term, committed contracts, and as a result, it has visibility into its future revenue potential. At the end of Q1, CoreWeave had amassed a revenue backlog of $25.9 billion, up 63% year over year thanks to a deal with OpenAI. The company forecasts 2025 full-year revenue to come in between $4.9 billion and $5.1 billion, a substantial jump up from 2024's $1.9 billion.
NASDAQ: CRWV
Key Data Points
CoreWeave's concerning downsides
Although CoreWeave has enjoyed massive sales success, there are some potential pitfalls with the company. For starters, it isn't profitable. Its Q1 operating expenses totaled $1 billion compared to revenue of $981.6 million, resulting in an operating loss of $27.5 million.
Even worse, its costs are accelerating faster than sales, which means the company is moving further away from reaching profitability. CoreWeave's $1 billion in operating expenses represented a 487% increase over the prior year, eclipsing its 420% year-over-year revenue growth.
Another area of concern is the company's significant debt load. CoreWeave exited Q1 with $18.8 billion in total liabilities on its balance sheet, and $8.7 billion of that was debt.
To keep up with customer demand for computing power, CoreWeave has to spend on expanding and upgrading AI-optimized hardware, and that's not cheap. As it adds customers, the company must expand its data centers to keep pace. Debt is one way it's funding these capital expenditures.
Among the risks of buying its stock, CoreWeave admitted, "Our substantial indebtedness could materially adversely affect our financial condition" and that the company "may still incur substantially more indebtedness in the future." In fact, its Q1 debt total of $8.7 billion was a 10% increase from the prior quarter's $7.9 billion in debt.
To buy or not to buy CoreWeave stock
Seeing an increase in both expenses and debt is a concern, but because CoreWeave is a newly public company, there's not much history to know how well it can manage its finances over the long term. Q1 is the only quarter of financial results it's released since its initial public offering.
If subsequent quarters reveal a trend toward getting costs and debt under control while continuing to show strong sales growth, CoreWeave stock may prove to be a worthwhile investment over the long run. But for now, only investors with a high risk tolerance should consider buying shares.
Even then, another consideration is CoreWeave's stock valuation. This can be assessed by comparing its price-to-sales (P/S) ratio to other AI companies, such as its customer and fellow cloud provider Microsoft and AI leader Nvidia.
Data by YCharts.
CoreWeave's share price surged over recent weeks, causing its P/S multiple to skyrocket past that of Nvidia and Microsoft. The valuation suggests CoreWeave stock is overpriced at this time.
Although CoreWeave's sales are strong, given its pricey stock and shaky financials, the ideal approach is to put CoreWeave on your watch list. See how it performs over the next few quarters, and wait for its high valuation to drop before considering an investment.
