CoreWeave (CRWV) stock plummeted 16% Wednesday after the AI data center company reported a disappointing quarterly outlook for its operating income.
The company said the previous day that it expects its third quarter operating income to fall between $160 million and $190 million, below the $192 million expected by Wall Street analysts tracked by Bloomberg. At the same time, the company expects interest expense of $350 million to $390 million during that period.
DA Davidson analyst Gil Luria told Yahoo Finance in an email Wednesday that “deteriorating operating income guidance highlights the main issue for CoreWeave – their interest expense is higher than their operating income which means they aren't generating enough profit to pay their debt holders.”
CoreWeave is one of the largest holders of Nvidia's (NVDA) AI chips and rents its data center capacity to Big Tech firms such as Microsoft (MSFT), Meta (META), and Google (GOOG) as they scramble to power their AI ambitions. CoreWeave stock’s performance is closely watched as a metric of AI demand.
Most Wall Street analysts are bullish on CoreWeave because they think AI demand will rise at a torrid pace and that tech firms will continue to rely on the company for additional computing power. At the other end of the spectrum, critics say the company is ripe for failure because of its mountain of debt, borrowed at high interest rates, and because its customers could end their contracts with CoreWeave once they finish building their own additional data centers to further their AI goals.
Luria noted that its $200 million operating income in the second quarter was already below its interest expense, which came in at $267 million during the period. He said the company’s falling operating income and rising cost of debt in the upcoming quarter means the issue “may be getting worse.”
The cloud firm’s earnings report also featured earnings below expectations. CoreWeave’s loss per share of $0.27 was more than the $0.19 loss expected. At the same time, its revenue of $1.21 billion exceeded analysts’ projection of $1.08 billion. CEO Michael Intrator said on the company's post-earnings conference call that there is “unprecedented demand for our AI cloud services.”
Most Wall Street analysts maintained their bullish takes on CoreWeave after the company’s second quarter earnings report. Deutsche Bank analyst Brad Zelnick raised his price outlook on shares to $125 from $50 but maintained his Hold rating, saying the stock’s drop Wednesday was “likely more related to anticipation into the lock-up expiration later this week than any new fundamental concerns.” A lockup period prevents company insiders from selling shares in the company for a designated length of time following an IPO. CoreWeave went public in March.
