Given CoreWeave’s (CRWV) compelling growth, along with its ability to increase its revenue from its existing customers and its impressive, recent deals, I view CRWV stock as a buy for growth investors. Another factor that should boost CRWV stock over the medium-to-long term is the likely continued, strong growth of AI. And although the stock's price-sales ratio is high, I believe that its overall valuation is attractive, in light of the company's strong performance and its potent, positive catalysts.
However, given the fact that CoreWeave has very formidable competitors, investors should keep tabs on its performance and be prepared to sell the shares down the road if its growth shows signs of slowing tremendously.
About CoreWeave
The company “operates a cloud platform that provides scaling, support, and acceleration for GenAI” and provides related infrastructure.
Among its customers are Meta (META), OpenAI, NASA, and Mizuho Bank (MFG), one of Japan's leading financial institutions. In the third quarter, CoreWeave's revenue jumped to $1.36 billion from $584 million during the same period a year earlier. Further, its EBITDA, excluding certain items, advanced to $838 million from $378.75 million. The shares are changing hands at an elevated price-sales ratio of 8.9 times.
CoreWeave's Impressive Performance and Outlook
In addition to the company's revenue and its adjusted EBITDA more than doubling year-over-year (YoY) in Q3, the firm made deals with both Meta and OpenAI in Q3. And in light of the Trump administration's expansive plans for NASA, CRWV's revenue from that agency is likely to surge by large amounts over the longer term.
Overall, nine of the company's ten top customers made more than one deal with the company, and the only customer who hasn't done so just came aboard in Q3, CEO Mike Intrator reported on the firm's Q3 earnings call. Its customers' willingness to sign multiple deals with the firm validates its technology and should enable it to continue to grow rapidly going forward.
Another indication that CoreWeave's growth will continue to be huge for the foreseeable future is the fact that its backlog jumped by $25 billion in Q3 to more than $55 billion. And finally, the CEO noted that the demand for its “platform far exceeds available capacity.”
A Likely Beneficiary of Continued, Strong AI Growth
According to one forecast, the AI market will grow at a large compound annual growth rate of 30.6% between 2024 and 2032. And with many companies still not using AI for a wide array of business functions, it does appear that the technology's growth is still in its early stages. Of course, as long as CRWV stays among the leading cloud platforms for AI, it is likely to benefit prolifically from the continued, rapid adoption of the technology.
CRWV Does Have a Key Weakness
The strength of CoreWeave's top competitors is a key weakness and threat for CRWV stock. Specifically, CRWV has to contend with competition from both Amazon (AMZN) and Microsoft (MSFT). Since those two giants have much bigger R&D and marketing budgets than CRWV, along with leverage over many key firms that depend on their products, they may be able to take a sizeable market share from CoreWeave in the medium-to-long-term. As a result, as I noted earlier, I recommend that anyone who buys CRWV stock keep an eye on its quarterly results and sell the shares if its growth rate drops a great deal.
Valuation and the Bottom Line on CRWV Stock
CoreWeave's price-sales ratio of 8.9 times is certainly elevated. But the combination of the company's powerful growth, impressive customers, and considerable opportunity makes its valuation attractive.
On the date of publication, Larry Ramer had a position in: AMZN , AMZU . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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