TLDR
- CoreWeave stock dropped 10% in premarket trading after posting a $290.5 million net loss, well above analyst estimates of $190.6 million
- Operating expenses jumped nearly fourfold to $1.19 billion in Q2 as the company scales rapidly to meet AI demand
- Company faces $20-23 billion in capital expenditure needs this year, likely requiring additional debt financing
- IPO lockup period expires August 14, potentially adding selling pressure from insiders and early investors
- All-stock acquisition of Core Scientific worth $9 billion faces uncertainty due to CoreWeave’s declining share price
CoreWeave stock (CRWV) took a beating in premarket trading Wednesday, falling 10% to $134.28 after the AI cloud provider reported losses that far exceeded Wall Street expectations. The Nvidia-backed AI infrastructure company posted a net loss of $290.5 million for the second quarter, crushing analyst estimates of $190.6 million.
The wider-than-expected CRWV stock loss came as operating expenses exploded nearly fourfold to $1.19 billion. This jump reflects CoreWeave’s aggressive AI data center expansion to capitalize on surging artificial intelligence demand, but it’s raising red flags about the AI cloud company’s path to profitability.
CEO Michael Intrator acknowledged CoreWeave is “scaling rapidly to meet unprecedented demand for AI infrastructure.” However, he pointed to power infrastructure as the biggest bottleneck, saying accessing power capable of delivering the required scale remains their top constraint for AI data centers.
The financial strain on CoreWeave stock is becoming harder to ignore. The AI cloud computing company currently carries around $8 billion in debt from last year. CoreWeave used about $1 billion from its March IPO proceeds to pay down some debt, but it’s not nearly enough given their AI infrastructure expansion plans.
CoreWeave Stock Faces Massive AI Infrastructure Investment Requirements
CoreWeave stock investors are watching closely as the company has guided for $20 billion to $23 billion in capital expenditures this year alone. Most of this AI infrastructure spending will go toward building data centers packed with Nvidia GPUs to serve cloud computing customers like Microsoft.
D.A. Davidson analyst Gil Luria estimates CoreWeave will need to add roughly $10 billion more in debt this year to support its AI data center buildout. His analysis shows the AI cloud provider’s interest expenses already exceed its operating income.
“CoreWeave does not currently generate enough profit to pay all its debt holders, certainly not equity holders,” D.A. Davidson analysts noted regarding CRWV stock. They maintained their Underperform rating with a $36 target price on the AI infrastructure stock.
The debt burden is creating a challenging cycle for CoreWeave stock performance. The AI cloud company operates 33 artificial intelligence data centers across the U.S. and Europe, providing access to highly sought-after Nvidia chips for training large AI models.
Revenue growth has been strong for the AI infrastructure provider, with CoreWeave beating quarterly estimates. This performance helped drive CRWV stock up nearly three-fold since the March IPO in the booming AI cloud computing sector.
CoreWeave Stock Drop Threatens Core Scientific AI Infrastructure Deal
CoreWeave stock has one potential solution to avoid taking on more debt for its AI expansion. The cloud computing company announced an all-stock acquisition of infrastructure partner Core Scientific in July, valued at $9 billion at the time.
However, CoreWeave stock’s decline since the AI infrastructure deal announcement has reduced the acquisition’s nominal value. Two Seas Capital, which holds about 6.3% of Core Scientific, has publicly stated it will oppose the deal unless terms are revised due to CRWV stock performance.
The AI infrastructure acquisition’s fate now depends heavily on CoreWeave stock’s share performance. This creates additional pressure as the AI cloud company faces its IPO lockup expiration.
The AI data center provider’s rapid expansion continues despite the financial challenges. CoreWeave’s business model centers on providing AI cloud infrastructure to companies that need massive computing power but don’t want to build their own data centers.
CoreWeave stock lockup period ends at market close on August 14, allowing insiders and early investors to sell their AI infrastructure shares for the first time since going public. This timing couldn’t be worse given the current CRWV stock weakness in the AI cloud computing sector.
Barclays analysts noted that CoreWeave stock investors will closely watch the company’s operating cash flow and capital expenditure figures as the lockup expiry approaches. The potential for insider selling often puts additional downward pressure on AI infrastructure stock prices.
Melius Research analyst Ben Reitzes maintained a Hold rating on CoreWeave stock but raised his target price to $128 from $110. He cautioned that the AI cloud provider “may take a breather” given the flattish revenue backlog and modest guidance beat.
The AI infrastructure market continues to show strong demand for CoreWeave’s services. The company’s AI data centers house specialized Nvidia hardware that powers artificial intelligence applications for major technology companies.
CoreWeave stock has been volatile since its March debut, reflecting broader uncertainty in the AI cloud computing sector about profitability timelines and capital requirements for infrastructure expansion.
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