CoreWeave (CRWV 0.13%) stock has soared this year as deal after deal has been announced for the products it sells. CoreWeave holds the data center cloud computing capacity tech firms are clamoring for.
Yet the stock plunged 45.3% last month, according to data provided by S&P Global Market Intelligence. That gives investors two key considerations. Either the bubble has burst, as shares of the cloud infrastructure provider were up as much as 300% earlier in the year, or the market is providing an opportunity not to be missed.
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AI market bubble
First, I think investors need to differentiate between an artificial intelligence (AI) bubble and an AI market bubble. Talk of an AI bubble emerged as big tech continued to announce significant capital investments for either building out AI infrastructure or partnering with firms like CoreWeave to reserve high-performance cloud computing capacity. That has driven stocks in the sector quickly higher beyond what current fundamentals warrant.
Even after CoreWeave's sharp decline in its November share price, the company is valued at a market cap of approximately $38 billion. That's more than seven times the company's expected revenue for 2025 -- without expecting to be profitable. Investors are assigning such a high valuation because the company claims a revenue backlog exceeding $55 billion.
But that includes some of what the company hopes will become actual revenue in future periods from deals that have been announced. Investors drove the stock to bubble territory based on those hopes. That wasn't sustainable in the short term, which explains the November plunge.
NASDAQ: CRWV
Key Data Points
What do the AI experts say?
If those capital spending plans are scaled back, stocks like CoreWeave are likely to continue declining further. It may have more of a correction coming in the near term, regardless. However, an AI leader like Nvidia CEO Jensen Huang has recently said its sales are "off the charts." He added that "compute demand keeps accelerating and compounding...growing exponentially."
CoreWeave itself claimed its record third-quarter revenue, and revenue backlog, reflect "unprecedented demand for AI." Investors who are inclined to believe those immersed in the sector on a daily basis should see plenty of growth ahead. It won't come in a straight line, though. There may also be obstacles along the way. Electricity supply, for example, is a growing hurdle for data center expansion.
What's next for CoreWeave
As excitement for the AI future grew, investors drove valuations too high on names like CoreWeave. There may be more downside to come as well. Investors who believe that AI has significant growth potential should closely monitor the stock and other companies in the sector.
Now may not be the time to jump back into CoreWeave stock, but there could be much more upside if its contracts all pan out and more are announced. If Jensen Huang continues to say the sector still has exponential growth occurring, I say investors should listen.
