Throughout history, technological innovations have often coincided with investor enthusiasm that can occasionally reach euphoric levels. Today's craze for artificial intelligence (AI) is likely to create some bubbles within the industry, even if AI as a whole is a genuinely revolutionary technology and investment opportunity.
There are some similarities between today's market and the late 1990s, when the internet helped inflate the dot-com bubble.
One of those is a hot initial public offering (IPO). CoreWeave (CRWV 1.84%) has already skyrocketed more than 70% since going public earlier this year, making it arguably AI's hottest IPO of 2025.
Yet, the red-hot AI stock could be in for a painful 2026. Here is why investors may want to approach CoreWeave cautiously.
Image source: Getty Images.
CoreWeave's explosive growth is impressive at first glance
As promising as AI's potential is, laying the groundwork for global AI adoption has required a monumental level of investment and effort. Companies known as hyperscalers are investing hundreds of billions of dollars into chips and data centers to supply the computing power necessary for training and operating increasingly advanced AI models.
CoreWeave is cashing in on this gold rush. In a nutshell, it is building data centers equipped with graphics processing units (GPUs), then selling their computing capacity to companies like Microsoft and Meta Platforms. Broadly speaking, hyperscalers have maintained that AI demand continues to outpace available data center capacity.
NASDAQ: CRWV
Key Data Points
So CoreWeave represents a way for these companies to increase their computing capacity faster, and without having to own all the hardware themselves. Its business is exploding, and revenue has increased by over 230% since late last year and now stands at $4.3 billion for the past four quarters. The company has a $55.6 billion revenue backlog.
However, the underlying financials are hideous
That's a nice story at the surface level, but there are some serious concerns when you start peeling back the layers. To start, CoreWeave is incinerating cash as it spends on GPUs and other hardware to support its growth. Its free cash flow is minus $8 billion over the past four quarters. In other words, cash losses are almost twice its revenue.
The company is borrowing aggressively to fund its hardware purchases. Long-term debt has surged from virtually nothing to over $18.4 billion since just last summer. CoreWeave seems stuck in a chicken-and-egg situation, where it must grow to eventually turn a profit, but it must spend and borrow to achieve this growth.
That $55.6 billion revenue backlog appears impressive, but the reality is that accommodating it will likely come at a steep cost.
Why the stock seems destined to fall over the coming months
With cash flow nowhere near positive territory, CoreWeave will probably continue to borrow and issue stock to fund its growth efforts. Continuously issuing shares causes share dilution, which hurts a stock's performance over time because revenue and profits are spread more thinly across a broader shareholder base.
Moving to the balance sheet, investors can look to Oracle to see an example of what excessive borrowing can do to a stock's share price. CoreWeave's $18.4 billion debt load is already roughly a third of its enterprise value.
The initial buzz of the AI boom appears to be wearing off, and investors are beginning to examine how companies will generate a decent return on all this spending and borrowing. Unless CoreWeave can quickly demonstrate a path to profitability, the stock risks crumbling under the weight of the company's swelling financial burden. It's a difficult situation for the stock heading into 2026, one that investors might be better off avoiding.
