CoreWeave Stock Fell 11.4% on Friday. The Sell-Off Is About What It's Spending, Not What It's Selling.
CoreWeave's stock fell 11.4% on Friday, wiping out its entire week's gains. The drop is attributed to the company's high spending on capacity, which is running ahead of its revenue. The company plans to spend $31 billion to $35 billion this year, which is five times its p…
Intelligence analysis by Llama
CoreWeave's high spending on capacity is causing concern among investors, leading to a sell-off in its stock. The company's revenue is growing, but its spending is running ahead of its revenue, leading to a significant gap. This gap may be part of what's spooking investors.
Imagine you have a lemonade stand, and you want to grow your business. You need to buy more lemons and sugar to make more lemonade. But if you buy too many lemons and sugar, and you don't sell enough lemonade, you'll be in trouble. That's kind of what's happening with CoreWeave. They're spending a lot of money to grow their business, but they're not selling enough to cover their costs. This is making investors worried.
Analysis
A $60B Vote of Confidence
CoreWeave's revenue climbed 112% year over year in the first quarter, to $2.08 billion, and its revenue backlog stood at $99.4 billion at the end of March. However, the picture thins as you move down the income statement. Non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $1.16 billion for the quarter, a 56% margin -- down from 62% a year earlier. Adjusted operating income, which charges the quarter for depreciation on all those graphics processing units and data centers, fell year over year to $21 million from $163 million. On that line, the margin went from 17% to 1%. Management expects it to expand each quarter from here, into low double digits by the fourth quarter.
The Spending Is Running Years Ahead of the Revenue
Management expects capital expenditures of $31 billion to $35 billion this year. CoreWeave's revenue over the past 12 months was about $6.2 billion. That gap may be part of what's spooking investors. In other words, the company plans to spend about five times its past year's sales on capacity in 2026. Zoom out, and the step-up is steep: CoreWeave reported $14.9 billion in capital expenditures in all of 2025. One quarter tells the same story. CoreWeave generated $2.98 billion of operating cash flow during the first quarter and spent $7.7 billion on property and equipment.
Competition Is a Concern
Bloomberg reported on July 1 that Meta Platforms is building a cloud business to sell surplus AI computing capacity to outside customers. Meta also committed $21 billion to CoreWeave earlier this year, so one of the company's biggest customers may be preparing to compete with it.
Key points
- CoreWeave's stock fell 11.4% on Friday, wiping out its entire week's gains.
- The company plans to spend $31 billion to $35 billion this year, which is five times its past year's sales.
- CoreWeave's revenue is growing, but its spending is running ahead of its revenue.
- The company has a strong revenue backlog and is growing its revenue quickly.
- CoreWeave's high spending on capacity and its large debt burden make it a riskier investment.
If CoreWeave can manage its spending and increase its revenue, it could be a successful company. The company has a strong revenue backlog and is growing its revenue quickly. However, it needs to be careful not to overspend and get into financial trouble.
CoreWeave's high spending on capacity and its large debt burden make it a riskier investment. If the company cannot manage its spending and increase its revenue, it could face financial difficulties. Additionally, the competition from Meta Platforms could make it harder for CoreWeave to succeed.
