Is CoreWeave the Best AI Buildout Play?
Key Points
CoreWeave’s revenue is surging, powered by long-term deals with major artificial intelligence (AI) players.
Its reliance on third-party builders creates execution risk that other data center companies don't have.
Vertically integrated operators like IREN and TeraWulf may have an advantage in better control and faster data center buildouts.
- 10 stocks we like better than CoreWeave ›
CoreWeave (NASDAQ: CRWV) revenue has more than doubled in every quarter over the past year, reaching $5.1 billion on a trailing-12-month basis. Analysts expect that growth to continue, with revenue forecast to roughly double again this year to more than $12 billion.
This artificial intelligence (AI) cloud provider has benefited from signing long-term contracts with top AI companies like Microsoft, OpenAI, and Meta Platforms. It also just reached a new deal with Anthropic.
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However, there's one weakness that keeps me from viewing it as the best AI infrastructure investment.
Image source: Getty Images.
The biggest concern is that CoreWeave relies heavily on leasing data center capacity rather than building and operating its own facilities. The pitfall of this showed up last year when CoreWeave announced a construction delay tied to a third-party builder. The issue has since been resolved, but it underscored a key risk -- expanding its data center capacity is not fully under its control.
To be fair, leasing has helped CoreWeave expand quickly without incurring significant capital costs. But companies that own and operate their own facilities are not subject to this problem, and it can lead to stronger stock performance.
Two examples are vertically integrated operators IREN and TeraWulf, whose stocks are up over 600% and 700%, respectively, over the past year -- significantly outperforming CoreWeave shares.
Over the long run, companies that own the land and power behind their data centers may have the edge. Vertical integration can mean tighter control over construction timelines, better cost efficiency, and a faster, more predictable path to bringing new capacity online -- advantages that could continue to translate into higher long-term returns, as IREN and TeraWulf are already demonstrating.
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John Ballard has positions in Iren. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.
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