CoreWeave shares climbed to $91.90 on Tuesday, tracking gains across other neocloud companies such as IREN and Nebius. The stock is now up more than 50% from its lowest level this year. However, despite this strong rally, the company faces substantial risks ahead.
AI rally lifts CoreWeave
The ongoing rebound in CRWV stock coincides with a broader surge in AI-related equities. Nvidia, the world's most valuable company, is approaching a $6 trillion market capitalization. AMD rose 3.6%, while Dell and Broadcom also advanced.
CoreWeave is a major provider of computing solutions to leading AI firms, including Anthropic, OpenAI, and Microsoft. It has become the largest player in the neocloud industry, with a revenue backlog exceeding $104 billion. Notable deals include a $35 billion partnership with Meta, a $22 billion agreement with OpenAI, and a $6 billion contract with Jane Street.
The company's latest quarterly revenue jumped 112% year-over-year to $2.6 billion. Analysts project annual revenue of $12.87 billion this year, up 150% from the prior year, and expect it to more than double to $26.7 billion next year.
Persistent risks weigh on outlook
Despite the optimism, CoreWeave faces several major challenges that explain why the stock remains in a bear market. One key concern is its escalating capital expenditure. The company plans to spend between $35 billion and $39 billion this year, having already invested over $29.2 billion in the last five quarters. This spending is likely to grow as the cost of servers, GPUs, CPUs, and storage rises, forcing the company to raise additional debt and equity.
Depreciation is another significant issue. In its latest earnings report, CoreWeave's depreciation and amortization (D&A) surged to over $1.3 billion, up from $560 million a year earlier, representing more than 52% of total revenue. Investor Michael Burry has suggested that GPUs have a useful life of only two to three years, while CoreWeave assumes over five years. This discrepancy is reflected in the company's bond yields, with 2032 maturities yielding 11.3%. Recently, CoreWeave raised $1.1 billion through a junk bond offering.
Competition is also intensifying. Nscale, a British company, has seen its backlog jump to over $104 billion, while Lambda is raising $4 billion at a $14.5 billion valuation. Additionally, Bitcoin miners like Riot Platforms and MARA Holdings have diversified into AI data centers.
Technical pattern signals potential decline
The daily chart shows CoreWeave stock has formed a head-and-shoulders pattern, with a neckline at $66.55. This pattern is considered one of the riskiest in technical analysis. The stock has been consolidating along its 50-day and 100-day exponential moving averages. The most likely scenario is that the stock remains under pressure and retests the $66.55 support level. A break below that level could lead to further downside.
This article is for informational purposes only and does not constitute financial advice.
