Down 35%, Is CoreWeave a Buy on the Dip?

CoreWeave (NASDAQ: CRWV), a cloud company specializing in artificial intelligence (AI) compute, made its stock market debut at a difficult time, this spring as President Donald Trump's import tariff announcements shook the stock market. But after a tough month or so, investors, encouraged by CoreWeave's soaring revenue, piled into the stock -- and it jumped in the triple digits to gain more than 300%.

Over the past month, though, CoreWeave lost that positive momentum, as we can see by the 35% decline in the stock. Should investors worry about a slowdown, or is this tech player a buy on the dip? Let's find out.

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Capacity for AI workloads

CoreWeave's revenue has surged in recent quarters as it offers AI customers something they desperately need right now: capacity for their workloads. The company's cloud is specialized for AI, unlike large cloud service providers that offer a broader range of non-AI products and services. As a result, CoreWeave can tailor its services to perfectly suit the needs of AI customers.

The company offers these customers the opportunity to rent compute from its fleet of more than 250,000 graphics processing units (GPUs) for just a few hours or a long period of time, and by renting GPUs instead of buying these high-power chips, customers save both time and money.

As a result, CoreWeave's revenue more than doubled to $1.3 billion in the latest quarter, and contracts with AI leaders have been encouraging. Research lab OpenAI and CoreWeave expanded their agreements during the period to total $22 billion, and Meta Platforms signed a $14 billion deal with the GPU-as-a-service provider.

Another plus for CoreWeave is it has the backing of one of the key players in AI, chip leader Nvidia. The AI giant holds a 7% stake in CoreWeave and recently made a move that shows a vote of confidence: Nvidia said it would buy any CoreWeave unused capacity through 2032. Nvidia's confidence is a positive point because the company knows the AI market well: Through its communications with its customers and view of their upcoming orders, Nvidia has significant visibility on what's ahead.

Why is CoreWeave declining?

All of this sounds good -- so why has CoreWeave stock been falling in recent times? First, the backdrop for AI stocks has been complicated, with some investors worried that valuations have climbed too high and that a bubble may be forming. Though tech earnings continue to support the idea of strong demand now and more to come, this concern still has put the brakes on many AI stocks over the past few weeks.

And CoreWeave itself has announced two things that may have weighed on the stock. First, the company's plan to acquire Core Scientific -- a move that would have resulted in cost savings -- fell through as Core Scientific shareholders voted against the operation. The purchase would have cut more than $10 billion in lease overhead for existing sites for the coming 12 years, CoreWeave said when it announced its intentions. Though this doesn't call into question CoreWeave's growth story, the news still disappointed some investors. Second, CoreWeave's latest outlook for full-year revenue in the range of $5.05 billion to $5.15 billion lags behind analysts' estimates for $5.29 billion.

These elements have weighed on investor appetite for CoreWeave stock, leading it to a double-digit decline in recent weeks.

Time to buy?

Now let's get back to our question: Should you worry about CoreWeave right now, or is the stock a buy on the dip?

It's important to note that CoreWeave stock has delivered an amazing performance in recent months, and such momentum doesn't continue forever without a pause here and there. So, considering the bits of negative news mentioned above, it's not surprising to see some investors locking in profits after major gains. The stock might have been ripe for a pullback.

But the good news is this doesn't change CoreWeave's long-term prospects. Even if we see some weakness in AI stocks in the near term, the AI investment picture remains strong, and analysts predict the AI market will surpass $2 trillion early next decade -- CoreWeave, as a supplier of compute, is well positioned to gain as this story evolves.

That makes the stock a great buy on the dip for growth investors looking for potential long-term AI winners.

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