Cloud computing is an important segment of the AI race. Many AI companies do not want to manage the data center infrastructure necessary to run their applications, so they rent computing power from cloud providers like Amazon Web Services (AWS) (AMZN +3.29%). This is a cost-effective way to obtain a large amount of computing power quickly.
While AWS may be the largest cloud infrastructure provider, with a market share of about 28% at last report, it's far from the only one. There are many others, including some that specialize in AI computing, like CoreWeave (CRWV +0.61%). CoreWeave is a rising star in the cloud computing arena, and is growing far faster than AWS.
Could CoreWeave unseat Amazon as the top cloud provider? Let's take a look to see what level of growth would be necessary.
Image source: Getty Images.
Amazon has a huge head start
During the second quarter, AWS' revenue grew at a 37% year-over-year pace to $42.2 billion. CoreWeave's revenue totaled $2.1 billion, but it grew at an impressive 112% year-over-year pace.
While AWS is about 20 times the size of CoreWeave, the backlog size is also in CoreWeave's favor when overall size is considered. Amazon's backlog totaled $496 billion in Q2, while CoreWeave's was nearly $100 billion. That means there's still a lot more growth ahead for CoreWeave, while Amazon will continue to enjoy modest revenue growth (at least when compared to CoreWeave's).
NASDAQ: AMZN
Key Data Points
So, just how much of a head start does Amazon have on CoreWeave? If AWS and CoreWeave each continue their 37% and 112% growth rates for the foreseeable future, it would take nearly seven years of growth for CoreWeave to reach the same spot as Amazon. Neither company's growth rate is likely to stay that rapid over that time frame, so I think it's highly unlikely that CoreWeave will be able to catch AWS in terms of quarterly revenue.
But that doesn't mean it can't be a good investment. So, which is the better buy moving forward?
CoreWeave has greater upside, but with more risk
CoreWeave is growing far faster than AWS. However, CoreWeave isn't profitable. Unlike Amazon, CoreWeave doesn't have a profitable business to fund cloud computing growth. It must take on debt and issue shares to raise capital to build out its data center footprint, and then become profitable.
AWS went through that for several years, but is now a fully profitable entity. In Q2, it generated an impressive 39% operating margin. If CoreWeave can continue growth at a rapid pace and achieve a strong operating margin like AWS has, it will be an incredible investment. Wall Street is forecasting 104% growth for CoreWeave during 2027.
NASDAQ: CRWV
Key Data Points
If CoreWeave could snap its fingers at the end of next year and duplicate AWS's 39% operating margin, it would generate $10.2 billion in operating income. If at that point the market were to value CoreWeave at 30 times that hypothetical operating income, that would make it a $300 billion company. For reference, CoreWeave has a market cap of $48 billion right now, so this would represent the stock rising sixfold.
That's a performance that Amazon wouldn't be able to duplicate due to its already massive size. However, CoreWeave isn't guaranteed to become as profitable as AWS, and it may take several years for it to get into the black at all.
While CoreWeave won't unseat AWS anytime soon (if ever), I think it's an OK long-shot investment. Still, investors must understand that there's significant execution risk with CoreWeave, as it has a long way to go. AWS will drive Amazon to new heights, but it won't be able to provide the run that CoreWeave can. But it will likely still provide market-beating returns.
