In investing, there are no points for originality. So when you're looking for ideas, it can pay off to take a look at what the professionals are doing.
Institutional investors report their holdings every quarter in 13-F filings, showing retail investors what they're betting on. It can be helpful to see what the investors you admire most are buying. Additionally, it can help to track stocks that are held by multiple high-profile investors.
One such stock is CoreWeave (CRWV -4.98%), the AI cloud, or neocloud, infrastructure company that soared since its IPO in March. Among its holders are Nvidia (NVDA 0.35%), led by CEO Jensen Huang, as well as Cathie Wood's Ark Invest and Ken Griffin's Citadel Securities.
All three of these investors have different approaches. Nvidia has built a portfolio of AI stocks that includes CoreWeave and Intel. It's both a customer and a vendor for CoreWeave, and held 24.3 million shares at the end of the second quarter.
Wood is known for investing in disruptive growth stocks, and CoreWeave certainly fits the bill there. Ark finished the second quarter with 340,000 shares. Citadel Securities, which owns hundreds of stocks and options, is noted for its sophisticated analytics and focus on finding market inefficiencies. It finished the quarter with 156,000 CoreWeave shares in addition to some put and call options.
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Why CoreWeave is a popular choice
For growth-minded investors or those looking for exposure to AI, CoreWeave has a lot of appeal. The stock is risky, but it also has a lot of upside potential, and it's one of the few stocks that is essentially a pure-play AI stock. CoreWeave owns data centers, fills them with Nvidia hardware, and rents them to its customers.
The cloud computing model has worked well for hyperscalers like Amazon, Alphabet, and Microsoft, and it could do the same for the neocloud. It's clear that there's overwhelming demand for CoreWeave's service right now. The company reported revenue jumping 207% to $1.21 billion in the second quarter. However, that growth has come at a cost as the company has $11 billion in debt and is on track to pay more than $1 billion in interest expense. Because of that interest expense, the company is deeply unprofitable, but the demand growth justifies the capital expenditures.
Is CoreWeave a buy?
CoreWeave has not even been public for six months, but it's taken investors on a wild ride so far. The company struggled in its IPO, which was undersubscribed, forcing it to lower the offer price to $40. Then, as the tech sector started to rebound, CoreWeave rallied, peaking at $187 a share in June before pulling back from there.
For AI and growth investors, getting some exposure to a stock like CoreWeave makes sense. Any company delivering triple revenue growth clearly has upside potential, and CoreWeave's neocloud model is disruptive. There is only one significant competitor to CoreWeave, Nebius, which is significantly smaller than CoreWeave right now.
There's a lot of risk in CoreWeave's business model, which relies on debt funding, and critics have questioned the longevity of its GPUs, which could depreciate rapidly as the technology advances. However, CoreWeave also benefits from its close relationship with Nvidia, which is both an investor, a major customer, and a major supplier. Nvidia also recently signed a $6.3 billion deal with CoreWeave and agreed to backstop its capacity, purchasing any residual unsold cloud computing capacity through 2032.
The Nvidia deal should also reassure investors that CoreWeave is not quite as risky as it might seem. The stock will continue to be volatile, but if the AI boom persists, CoreWeave should be a winner.
