Why CoreWeave Stock Is Plummeting Today

Key Points

• CoreWeave's Q2 earnings release earlier this week didn't do enough to quiet the bears.

• The company beat consensus estimates for sales and earnings, but reading between the lines, there are reasons for concern.

• The already heavily leveraged company could take on an additional $10 billion in debt by year-end.

• 10 stocks we like better than CoreWeave ›

Shares of CoreWeave (NASDAQ: CRWV) are falling on Thursday, down 11.4% as of 12:52 p.m. ET. The drop comes as the S&P 500 and Nasdaq Composite were down modestly.

The artificial intelligence (AI)-focused cloud provider's stock continues to slide after releasing its second-quarter earnings earlier this week. Though the company mostly beat Wall Street's targets, it wasn't enough to quell fears that the stock is overvalued.

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CoreWeave's stock falls for the second day

The company beat analysts' estimates for revenue and earnings, with sales of $1.21 billion for the quarter coming in well above the $1.08 billion consensus target. CoreWeave also shrank its net loss and vastly improved its margins.

CEO Michael Intrator said the report "demonstrates continued momentum across every dimension of our business," and that his company is "scaling rapidly" amid "unprecedented demand for AI."

Still, investors saw reasons to be wary. The company's capital expenditures came in lower than expected for the quarter, and while less money moving out the door might sound like a good thing, as a company in hypergrowth mode, its capex is a good indicator of future revenue growth -- a sort of bellwether of demand.

Image source: Getty Images.

Other analysts pointed to the massive increase in its debt and the cost to service that debt. The company paid $267 million in interest this quarter, up significantly from the $67 million it paid a year before. D.A. Davidson analyst Gil Luria believes CoreWeave will take on a whopping $10 billion of additional debt by the end of the year.

This is a high-risk stock

CoreWeave is heavily leveraged already and will continue to take on huge amounts of debt at steep interest rates in order to meet the "unprecedented demand" for AI. If that demand weakens, CoreWeave would be on the hook and could find itself in hot water.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.