CoreWeave Pulls Back Into a Screaming Buy
CoreWeave’s (NASDAQ: CRWV) Q2 results left something to be desired with the adjusted net loss widening, but it is not a reason to sell. The losses are tied to the company’s ramping business, scaling to meet the wicked demand for cloud-native AI compute capacity, and it is money well spent.
The company’s revenue is growing at a hyper-triple-digit pace and will likely accelerate in the upcoming quarters.
CoreWeave’s revenue pipeline is driven by demand from AI labs, enterprises, and hyperscalers, and it's worth more than 500% annualized growth relative to the Q2 results. The takeaway is that the release sparked a price correction, and one that investors should take advantage of because of the robust outlook.
This company is forecasted to sustain a high, double-digit revenue CAGR through the decade's end and grow earnings significantly faster.
CoreWeave Growth Tops 200%, Exceeds Forecasts
CoreWeave had a solid quarter with revenue growing by 210.3% year-over-year (YOY) to $1.21 billion. The strength was driven by demand and execution, and the company’s lean into NVIDIA’s (NASDAQ: NVDA) ecosystem, the driving force of AI markets today. It is the first provider to host the full Blackwell lineup, a move that plays into the ballooning expenses.
Regarding the operating margin, the adjusted results reveal a 600 basis point contraction in operating margin and a 1000 basis point increase in the operating loss. However, as bad as it sounds, other AI-focused companies, such as Meta Platforms (NASDAQ: META), a CRWV customer, have proven that increased AI spending leads to accelerating top- and bottom-line results.
CoreWeave’s guidance affirms the outlook for ongoing strength. The company increased its outlook for Q3 and the full year, raising the revenue range to above the prior high-end and the consensus estimates. Due to the growing business momentum, the company will likely outperform its Q3 targets, and another guidance increase will follow.
CoreWeave Is Leveraging Value for Its Investors
The balance sheet and share count highlights reflect intensive capital-raising but do not pose a risk for investors in the long term. The share count, while up 132% YOY, is unlikely to be increased significantly from this point, and the balance sheet remains healthy.
The 37% increase in long-term debt is offset by increased cash and equivalents, current and total assets, with total assets up $8.4 billion to outpace the liability increase by $2.5 billion. The net result is that long-term debt leverage remains low at only 2.8x equity, and equity has shifted from negative to positive. Investors can expect to see equity continue to improve as the quarters progress.
The bad news is that, despite the positive biases, the analysts' sentiment trends align with an outlook for a significant price correction. The data reported by MarketBeat reveals coverage is increasing and sentiment is firm, but the rating is only a Hold, and the consensus price target lags the market.
The price action in CoreWeave stock increased by 50% from late July to mid-August, outpacing the consensus by approximately 65%. Although the revision trend is positive and the high-end range suggests another 30% upside is possible, the consensus of July and August targets puts this market in the range of $100 to $110, a 20% downside from the early August highs.
CoreWeave Buying Opportunity: Wait for the Market to Make the First Move
CoreWeave stock pulled back by nearly 10% in premarket trading following the release. The move aligns with recent support targets and may trigger buying at the open, but there is risk of a deeper pullback. The price action shows significant resistance at $147, which may lead to increasingly bearish activity in late August.
The critical support target is near the 30-day EMA at $125; a move below that level will likely result in a retest of the August lows near $100.
