Down 40%, Is CoreWeave a Buy on the Dip?

CoreWeave (NASDAQ: CRWV) has been one of the most-watched artificial intelligence (AI) stocks around over the past year. The company launched an initial public offering last March, has reported explosive revenue growth -- and has the backing of AI market star, Nvidia.

All of this has helped CoreWeave attract the eyes of investors, and the stock jumped more than 300% in the months following its IPO. But CoreWeave has encountered some rough patches along the way, and that's put a bit of a brake on the momentum. The stock today is down 40% from its peak back in June. Is this AI player a buy on the dip? Let's find out.

Image source: Getty Images.

What AI customers need right now

First, let's take a quick look at CoreWeave's business model. The company sells AI customers access to something they need greatly right now, and that's capacity for workloads. CoreWeave operates in the GPUs-as-a-service (GPUaaS) market, meaning it allows customers to rent graphics processing units (GPUs) to power their projects. They love this as it offers them flexibility -- they can rent by the hour or for longer periods of time. And it also may save them time and money, as by using CoreWeave's infrastructure, they don't have to invest in their own.

Meanwhile, CoreWeave, thanks to its close ties to Nvidia, has been first to bring the chip giant's latest platforms to customers -- here, I'm talking about Blackwell and Blackwell Ultra, each rolled out over the past year. Nvidia is a CoreWeave shareholder, and this may also offer us reason to be optimistic about CoreWeave: Nvidia, as a key player in the AI market, is well-positioned to understand which companies may emerge as winners as the AI story unfolds.

An element you shouldn't ignore

In recent quarters, CoreWeave's revenue has taken off -- for example, in the latest period, the company's revenue more than doubled to $1.3 billion. All of this sounds fantastic, but there is one element to keep in mind -- and this element may determine whether you buy the stock. To keep up with market demand, CoreWeave must heavily invest in GPUs, and this has led to increasing debt levels.

This equals risk because any slowdown in AI spending or other market headwinds could weigh on demand for CoreWeave's services -- and hurt the stock price. And another risk is that investors, who have worried about valuations of AI stocks recently, may shift to long-established tech companies that are profitable and less dependent on borrowing to grow.

So, is CoreWeave a buy on the dip? Cautious investors should hold off and seek out safer AI stocks -- but if you're an aggressive investor, now is a great time to pick up a few shares of this AI growth stock.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.