Artificial intelligence (AI) investors love Nvidia. One stock has crushed its returns in the last few months: CoreWeave (CRWV 8.45%). The stock in the AI-focused cloud computing provider (and large Nvidia customer) is up 268% since its initial public offering (IPO) in late March, while Nvidia stock is flat year to date as of June 15.
Investors are falling in love with the rapid growth at CoreWeave and its huge growth projections when it comes to AI and the cloud. Are you missing out by not owning CoreWeave stock to play the AI boom?
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Rapid stock appreciation after IPO
CoreWeave stock has gone up and to the right since its initial public offering (IPO). This is common among popular IPO stocks, as they generally have a low publicly traded float -- meaning the amount of shares you can buy and sell each day -- before its lock-up period ends for insiders. A lock-up period is when insiders cannot sell shares after the IPO, and usually lasts three to six months.
This led CoreWeave's stock to rise 268% in just a few months. Its revenue is growing like wildfire, up 420% year over year last quarter to $982 million. In 2025, the company expects to generate around $5 billion in revenue, which is up from basically zero in 2022. That means CoreWeave has gone from zero to $5 billion in revenue in less than five years, making it one of the fastest growing companies in market history.
Why is CoreWeave growing so quickly? Because AI developers are flocking to its cloud platform to utilize its data centers for training and running AI systems. CoreWeave was built from the ground up for AI systems, which is why it now has a backlog of $25.9 billion. To be clear, it is not going to dethrone the other cloud providers, but it is increasingly nabbing share in the all-important AI growth category.
Strong guidance, but heavy cash burn
Guidance calls for major growth in the future. In 2025 alone, CoreWeave is expecting to spend at least $20 billion on capital expenditures, or around 4 times its revenue estimates for the year. This means the company is laying out a huge amount of capital ahead of expected future demand as it hopes to capture more and more cloud spending related to AI.
Being a global cloud provider is expensive. You have to spend billions of dollars ahead of time to build data centers, getting returns steadily in the future as your customers pay for computing capacity.
All this aggressive spending will lead to huge cash burn. CoreWeave had negative free cash flow of $1.35 billion in the first quarter of 2025. This burn is expected to accelerate in the upcoming quarters given management's guidance for capital expenditures. For 2025, $5 billion in revenue vs. $20 billion in capital expenditures means at least a $15 billion free cash burn, and that is before considering any overhead costs. This will require a lot of capital raising, as the company has well under $5 billion in cash on the balance sheet.
Management will likely need to take out more debt and sell more shares of its common stock in order to get the cash needed for these capital expenditures. It will not be cheap.
Should you buy CoreWeave stock?
Bulls may argue that CoreWeave is the future of cloud computing, one of the largest industries in the world that has brought riches to Amazon, Microsoft, and Alphabet shareholders. It has fast-growing revenue, a large backlog, and is one of the hottest stocks out there.
However, at a market cap of $70 billion, I think CoreWeave stock is too richly valued for investors at the moment, and would lean to side with any bears who are hesitant to buy the stock today. The company has loaded up its balance sheet with debt, which has high interest expenses. More debt may be coming in order to finance its ambitious capital expenditure plans in 2025.
Even if the company reaches its guidance for $5 billion in revenue this year, CoreWeave will be trading at a price-to-sales ratio (P/S) of 14.2, which is an aggressive valuation for any stock, let alone one with such a large free-cash-flow burn and debt levels. Stay away from CoreWeave; this a risky stock to add to your portfolio right now.
