Investors Hated CoreWeave's Earnings. It Might Be Even Worse Than They Realize

Core Viewpoints - CoreWeave, an AI-focused cloud infrastructure provider, experienced a significant market reaction following its fourth-quarter earnings report, with shares dropping 18.5% due to a wider-than-expected loss and increased capital expenditures [1][2] Financial Performance - The company reported quarterly revenue of $1.57 billion, slightly exceeding estimates, but posted an adjusted loss per share of $0.56, which was worse than the anticipated $0.49 deficit [2] - Full-year 2025 revenue reached $5.1 billion, marking a 168% year-over-year increase, but concerns arose regarding overspending in a competitive environment [2] - Guidance for first-quarter revenue was projected between $1.9 billion and $2 billion, falling short of the $2.29 billion consensus, raising further concerns among investors [3] Growth and Losses - CoreWeave is in a hyper-growth phase but faces challenges with profitability, as Q4 adjusted EBITDA was $898 million with a 57% margin, while the net loss surged to $452 million due to high interest expenses and rapid deployments [4] - The company's contracted backlog reached a record $66.8 billion, indicating strong demand, but debt tripled year-over-year, and expenses in sales, marketing, and infrastructure increased significantly [5] Business Model Concerns - Notable short-seller Jim Chanos criticized CoreWeave's results, suggesting that even with an extended depreciation schedule for GPUs, the company would remain unprofitable, with interest expenses likely to drive pre-tax income negative by Q2 2024 [6] - Chanos also pointed out liquidity issues, predicting the need for CoreWeave to issue new stock soon, which would dilute existing shareholders [7] Alternative Perspectives - Rittenhouse Research provided a more optimistic view, arguing that CoreWeave's focus on long-term growth rather than short-term profits is valid, with gross margins compressing due to upfront costs rather than inefficiencies [8] - The firm projected $17 billion in annual recurring revenue for 2026, with expectations of improved EBIT margins, although Chanos countered that this would still yield unimpressive returns on invested capital [9] Depreciation and Valuation Risks - Concerns were raised regarding the depreciation of GPUs, with investor Michael Burry suggesting that the rapid evolution of technology could render older hardware obsolete much sooner than the standard depreciation schedule [10] - If CoreWeave's depreciation were adjusted to a shorter lifespan, it could significantly inflate expenses, making the business model unsustainable and amplifying liquidity risks [11] Investor Implications - The high stock multiple for CoreWeave assumes flawless execution in the AI market, but potential demand softening or increased competition could lead to financial distress due to heavy debt and capital expenditures [12] - While there are arguments for long-term growth potential similar to Amazon in the 1990s, investors may face significant dilution as the company seeks to raise capital [13]