Why CoreWeave Stock Gained 18% in August
Key Points
CoreWeave reported another round of triple-digit revenue growth in its second quarter.
The stock bounced back from a sell-off in July, benefiting from improving AI sentiment.
Rising interest rates remain a risk for the stock.
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Shares of CoreWeave (NASDAQ: CRWV), the volatile neocloud stock, notched an 18% gain in August, according to data from S&P Global Market Intelligence.
During the month, CoreWeave benefited from improving sentiment toward AI stocks as well as a better-than-expected second-quarter earnings report. Generally strong results from hyperscalers and other AI stocks helped lift the sector.
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As you can see from the chart below, the stock gained early in the month, and then popped the following week on its earnings report before giving back some of those gains.
CRWV data by YCharts
What happened with CoreWeave last month
CoreWeave kicked off the month with some good news, as Piper Sandler initiated coverage on the stock with an overweight rating and a price target of $151, and it said it would expand into Indonesia, building its first data center in the Asia-Pacific region.
Meanwhile, the unwind from the blowup of the Situational Awareness hedge fund and strong earnings reports from hyperscalers at the end of July helped create general tailwinds.
In the second week of August, the stock popped as CoreWeave delivered strong second-quarter results with revenue up 112% to $2.58 billion, ahead of estimates at $2.56 billion, and the company announced a revenue backlog of $104 billion at the end of the quarter, which doesn't include $25 billion in new commitments signed through the reporting date in August.
The company also raised its revenue guidance for the year from $12 billion-$13 billion to $12.4 billion-$13.2 billion.
The stock jumped 19.2% on Aug. 12 but gave back most of those gains on Aug. 18, as investors balked at rising interest rates and sold CoreWeave and its neocloud peers, which have a lot of exposure to interest rates. From there, the stock slipped further to close out the month, especially after Fed Chair Kevin Warsh made it clear that taming inflation was paramount, indicating that interest rates could go higher.
Image source: Getty Images.
What's next for CoreWeave
While CoreWeave's revenue growth has impressed, the company is deeply unprofitable on a generally accepted accounting principles (GAAP) basis, reporting a net loss of $626 million in the second quarter due to $640 million in interest expense.
That explains why CoreWeave faces interest rate risk, but it also underscores a larger risk with the company as it needs to continue to spend aggressively to buy more chips and build new data centers.
That could pay off over the long run, but if AI demand starts to pull back, CoreWeave is likely to get hit hard.
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Jeremy Bowman has positions in CoreWeave. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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