Is CoreWeave Stock a Buy on the Dip as Revenue Continues to Skyrocket?

Key Points

CoreWeave continues to see triple-digit revenue growth and a growing project backlog.

However, it is taking on a lot of debt to fund its growth and now it is getting squeezed by higher component prices.

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Shares of CoreWeave (NASDAQ: CRWV) sank following the company's first-quarter earnings announcement despite the neocloud company reporting another quarter of massive revenue growth and a swelling backlog. However, its adjusted earnings-per-share (EPS) loss was more than anticipated, and its Q2 guidance fell short of expectations. The stock is still up more than 60% year to date as of this writing.

Let's dive into CoreWeave's results to see if this dip in the growth stock is a buying opportunity.

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Project backlog continues to build

CoreWeave once again saw its revenue more than double, climbing 112% to $2.08 billion from $982 million a year ago. That came in ahead of the $1.97 billion analyst consensus, as compiled by LSEG. However, its adjusted EPS loss grew to $1.12 and was wider than the $0.91 loss analysts had expected.

One issue weighing on the stock is higher component costs. Due to this, the company raised the low end of its full-year capital expenditure (capex) budget to a range of $31 billion to $35 billion, from a prior outlook of $30 billion to $35 billion. Some investors have already questioned the economics of cloud computing and the artificial intelligence (AI) infrastructure build-out, so higher component costs only add fuel to that fire.

Despite higher losses and increasing component costs, CoreWeave's project backlog continues to balloon, reaching nearly $100 billion. During the quarter, the company signed multiple new agreements with Meta Platforms, including a $21 billion commitment in March. It also received commitments from Anthropic and expanded deals with existing customers, including Mistral and Cohere.

To help fund its build-out, the company has raised more than $20 billion in debt and equity. This includes an $8.5 billion delayed draw term non-recourse loan and a $2 billion equity investment from Nvidia. Non-recourse means the loan is secured by a specific asset, and a lender cannot pursue any other company assets in the case of default.

The company guided for Q2 revenue to be in a range of $2.45 billion to $2.6 billion, below the $2.69 billion consensus. It maintained its full-year guidance for revenue of between $12 billion and $13 billion. It is still expecting to achieve a $30 billion annual revenue run rate by the end of 2027.

Should investors buy CoreWeave stock on the dip?

CoreWeave is a highly leveraged way to play the data center AI infrastructure boom. Unlike the big three cloud providers, Amazon, Microsoft, and Alphabet, it's not generating a lot of cash flow to pay for its build-out, so it's going to have to take on a lot of debt. It also doesn't have any of its own custom silicon, and as such, relies on off-the-shelf graphics processing units (GPUs) and other chips. That makes it a bit more vulnerable to rising component prices than some others in the cloud computing space.

Overall, CoreWeave is a highly speculative stock. Its model could work as it scales, but it's not the way I'd want to play the AI infrastructure boom.

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Geoffrey Seiler has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.