CoreWeave Faces Earnings Pressure as Cracks Appear in AI Trade

Core Viewpoint - CoreWeave is facing scrutiny regarding its financial arrangements, debt levels, and reliance on a limited number of large clients, particularly in the context of rising artificial intelligence (AI) spending [1][3]. Financial Performance - CoreWeave is projected to report nearly $1.3 billion in revenue for the quarter, which represents more than a 100% increase compared to the same period last year [3]. - The company is expected to report an adjusted loss per share of 36 cents, an improvement from a loss of 53 cents in the previous quarter, attributed to increasing capital expenditures [3]. - The operating margin is anticipated to be around 14.3%, a decline from over 21% a year ago [3]. Market Context - The stock of CoreWeave dropped 22% last week amid a broader decline in AI-related stocks, contributing to the S&P 500 Index's first weekly loss in a month [2]. - Concerns are rising about the sustainability of heavy spending on AI by major companies like Meta Platforms and Microsoft, as well as the circular nature of recent AI deals, with OpenAI being a central figure [2][3]. Client Dynamics - A significant portion of CoreWeave's revenue is derived from major clients, including Meta, Microsoft, and Alphabet Inc., raising concerns about the company's dependency on these few customers [2][3]. - Despite investor concerns regarding AI spending, major cloud service providers (hyperscalers) assert the necessity of continued infrastructure investment, with demand for AI services outpacing supply [4]. Future Outlook - Analysts predict that CoreWeave's revenue will remain largely constrained by supply, potentially leading to increased capital expenditures in the following year [5]. - It is estimated that approximately two-thirds of this year's capital expenditures, around $14 billion, could be realized in the fourth quarter, which may result in accelerated sales growth in 2026 as supply becomes more available [5].