For the last couple of years, investing in the artificial intelligence (AI) industry likely meant you were buying stocks across the semiconductors, enterprise software, or cybersecurity industries.
While these markets have thrived thanks to new AI-powered services, I see a new opportunity unfolding that is getting little coverage. As cloud hyperscalers such as Microsoft, Alphabet, Amazon, and Oracle continue investing in data center build-outs, the need for infrastructure services is rising.
I'm not talking about the companies that are contracted to construct data centers or supply raw materials to manufacture chips, though. Rather, I'm more focused on how AI developers access the chip clusters that are stored in these data centers.
One company leading the charge in infrastructure-as-a-service (IaaS) is CoreWeave (CRWV -1.20%), which went public earlier this year. At the time of this writing, shares are up 300% since its IPO date. So, could CoreWeave be the next millionaire-maker AI stock? Read on to find out.
CoreWeave is a unique player in the red-hot AI realm, but...
By now, it's no longer a secret that cloud hyperscalers and other tech juggernauts like Meta Platforms or Elon Musk's new start-up, xAI, have been some of the biggest customers of graphics processing units (GPUs) and network infrastructure equipment from Nvidia, Advanced Micro Devices, and Broadcom over the last couple of years.
While that's great news for chip designers, there are a couple of nuances to point out. First, matching chip supply with rising demand has been a challenge for semiconductor businesses recently. As such, supply constraint businesses are able to leverage high degrees of pricing power -- essentially making it more difficult for small companies in the playing field to purchase adequate hardware.
This logjam is where CoreWeave is making a difference. CoreWeave offers a flexible model by which its customers can access GPU architectures through a cloud-based infrastructure. Essentially, CoreWeave is removing the middleman (i.e., chip manufacturers) for its customers -- giving them a more efficient, less capital-intensive mechanism to access high-performance GPUs as needed.
Image source: Getty Images.
... investors may be getting ahead of themselves for now
While the use case CoreWeave is trying to solve may seem like a no-brainer, that doesn't necessarily mean investors should blindly invest in the company.
CRWV PS Ratio data by YCharts
Not only is CoreWeave stock up by a meaningful amount since its IPO earlier this year, but the majority of gains really occurred throughout the month of May. With that in mind, the valuation expansion pictured becomes even more pronounced.
Could investing in CoreWeave stock turn you into a millionaire this year?
Given the share price trends illustrated, my concern around an investment in CoreWeave right now is that the stock has turned into a bit of a momentum opportunity. Given the ongoing upward trajectory of the stock, my suspicion is that CoreWeave has indeed made many people millionaires this year.
However, the caveat I see is that most of those investors were either involved with the company prior to its IPO or bought shares shortly following the initial pop and subsequent drop in CoreWeave during April. For these reasons, I think it's unlikely that investing in CoreWeave at its current peaking valuation will turn you into a millionaire this year.
With that said, I still find the company's value proposition to be compelling. And secular trends suggest that AI infrastructure spend, particularly on hardware, should reach the trillions over just the next five years. Those tailwinds bode well for CoreWeave.
In my view, CoreWeave could be a millionaire-maker stock -- just not for long-term investors in 2025. I think a more prudent approach is to wait for a dip opportunity to scoop up shares at a more reasonable valuation. From there, holding on to your position for the long run as the AI narrative continues to unfold could one day turn your initial investment in CoreWeave into a lucrative multibagger position.
