The wild stock moves driven by the artificial intelligence (AI) and space economy boom have shaken up the constituents of the Nasdaq-100 index. The index holds the 100 largest non-financial stocks listed on the Nasdaq, and the boom in AI and space stocks has ousted five companies from the index in its latest reshuffling.
One stock now included in the Nasdaq-100 is CoreWeave (CRWV +0.60%), which replaced Charter Communications (CHTR 1.11%). Investors are optimistic about CoreWeave and its aggressive spending to build an AI cloud computing business, while there are major fears over competitive threats to Charter's home internet business.
However, looking at the financials, it is clear that investors should find Charter Communications a much more attractive opportunity than CoreWeave at the moment. Here's why.
Image source: Getty Images.
Steady cash flow
Charter is a cable, home internet, and mobile connectivity provider, one of the largest in the United States. It has faced a structural headwind in its cable TV business for more than a decade, which has dragged on revenue growth. However, this is an overrated concern as the segment comes with high content costs and little profitability.
The other concern that has the stock down 84% from its highs is the stagnating growth of the home internet business, which is facing some competitive pressure from mobile providers like T-Mobile, fiber internet competitors, and satellite services. These have been headwinds to the business, but Charter has fought back with its bundle of mobile internet services sold to customers, which, combined, have stabilized revenue from connectivity in recent quarters.
CoreWeave is growing much faster than Charter as it gobbles up computer chips from providers like Nvidia and sells its computing power to AI software companies like OpenAI, but CoreWeave lacks financial discipline and solid unit economics. Its revenue grew by more than 100% year over year last quarter to $2 billion, but it was not profitable and has burned $10 billion in free cash flow over the last 12 months.
Despite being in a capital-intensive industry itself, Charter's free cash flow has been positive for the last decade.
NASDAQ: CRWV
Key Data Points
Better valuation
Since CoreWeave is not profitable, it is difficult to use traditional valuation metrics to analyze the stock. However, we can look at its price-to-sales ratio (P/S) of 7.7, which is a premium for a business with low gross margins and high capital intensity. Charter trades at a much lower P/S ratio and is actually profitable.
Both businesses use debt to fund their operations, with CoreWeave sitting on $25 billion in debt at the end of last quarter. Charter has a much larger debt load of $94 billion, but its quarterly operating income is $3.2 billion, well above its quarterly interest expense of $1.25 billion.
Even using enterprise value -- which includes net debt when making valuation analysis -- Charter trades at an enterprise value-to-EBIT (earnings before interest and taxes) ratio below 10. CoreWeave, on the other hand, is struggling to generate any profit.
Why Charter is a better stock than CoreWeave
Investors are right to fear the competitive threats facing Charter, but they shouldn't assume the existing wired home internet model will go away tomorrow. Wireless home internet from mobile providers like T-Mobile and satellite internet are much less reliable than a cable wired to a home, and only work in certain regions.
CoreWeave is not without competition, either. It is benefiting from the current trend of insatiable spending on AI data centers, but eventually this growth will normalize, with its competitors being the largest technology providers in the world. Combine this with its lack of profitability and premium valuation, and it is clear that Charter is a better value than CoreWeave stock today.
