Shares of CoreWeave (CRWV -8.75%) are flying higher on Thursday, up 12.4% as of 2:31 p.m. ET. The jump comes as the S&P 500 and Nasdaq Composite were unchanged.
The artificial intelligence (AI) cloud computing company is seeing its stock move higher after a round of earnings releases from major tech companies show AI capital expenditures are not slowing down anytime soon.
Big tech is still spending big on AI
Meta Platforms and Microsoft both recently released their second-quarter earnings reports, showing that their enormous AI-focused capital expenditures (capex) are not slowing down. In fact, they are accelerating. Meta's capex in Q2 nearly doubled year over year while Microsoft's grew by 22% year over year, reaching $17.1 billion. Incredibly, Microsoft told investors it plans to spend $30 billion in Q3, 60% more than analysts expected.
Microsoft's increase is especially important for CoreWeave, not just because of its magnitude, but because Microsoft is by far its biggest customer. There is clearly a demand for AI-optimized cloud computing capacity that, at least at the moment, outstrips big tech's ability to build its own infrastructure.
Citi upgrades CoreWeave stock, but I'm less convinced
Citi analyst Tyler Radke upgraded his rating for CoreWeave stock after Microsoft's earnings made clear there is still enormous and growing demand for what CoreWeave supplies. The analyst upgraded the stock from neutral to buy and set a price target of $160, a significant upside from its current price.
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While it's clear there is significant demand for CoreWeave's infrastructure right now, I have doubts about its viability long term. Building AI cloud computing infrastructure is enormously expensive, and the company will continue to have to raise funds to expand. It is also enormously expensive to operate, and there is a real question of when -- and frankly, if -- the company can reliably deliver a profit.
Furthermore, while big tech companies are leaning on third parties like CoreWeave at the moment, they are also rapidly expanding their own internal capacities. There is a real risk that over time, they will no longer need CoreWeave. It feels like too shaky of a moat for me, and I would avoid the stock.
