CoreWeave (CRWV) shares plummeted 16% on Wednesday after AI Data Center Company reported a disappointing quarterly outlook for operating profits.
The company said the previous day it expects its third quarter operating profit to be between $160 million and $190 million. At the same time, the company expects interest expenses between $350 million and $390 million over that period.
“The worsening operating profit guidance highlights CoreWeave's main issues. Their interest expense is higher than their operating profit, meaning they don't generate enough profits to pay debt holders,” Da Davidson analyst Gil Luria told Yahoo Finance in an email Wednesday.
CoreWeave is one of the biggest owners of NVIDIA (NVDA) AI chips, leasing data center capacity to major tech companies such as Microsoft (MSFT), META (META), and Google (Goog), strengthening AI ambitions. CoreWeave Stock's performance is closely viewed as an indicator of AI demand.
Most Wall Street analysts believe that demand for AI will rise at a heated pace and are bullish at CoreWeave as tech companies continue to rely on companies for additional computing power. At the other end of the spectrum, critics say the company is ripe for failure due to a mountain of debt. It is borrowed at high interest rates, as customers can terminate their contracts with CoreWeave once they have finished building their own additional data centers to promote their AI goals.
Luria said its operating profit of $200 million in the second quarter was already below interest expense, and was $267 million during that period. He said the company's decline in operating profit and rising debt costs for next quarter meant the issue could be “advanced.”
Cloud Farm's revenue report also featured revenue that was below expectations. CoreWeave's $0.27 loss per share exceeded the expected $0.19 loss. At the same time, revenues of $1.21 billion exceeded the $1.08 billion analyst's forecast. CEO Michael Intrator said in a post-revenue conference call for the company, “There is an unprecedented demand for AI cloud services.”
Most Wall Street analysts maintained that they had strengthened CoreWeave after the company's second quarter revenue report. Deutsche Bank analyst Brad Zelnick raised the stock price outlook from $50 to $125, but said Wednesday's decline is “more likely to be linked to forecasts for the expiration of lockups than new basic concerns later this week.” The lock-up period prevents insiders from selling company stock for a specified period following the IPO. CoreWeave was released in March.
