Down 50%, Is CoreWeave a Buy on the Dip?

Key Points

• CoreWeave offers customers access to Nvidia’s most sought-after AI chips.

• This has helped revenue climb -- but the soaring stock has pulled back in recent times.

• 10 stocks we like better than CoreWeave ›

Investors have found another way to bet on the success of artificial intelligence (AI) powerhouse Nvidia (NASDAQ: NVDA), and that's been through buying shares of CoreWeave (NASDAQ: CRWV). This new-to-the-market tech company -- it completed its initial public offering (IPO) in March -- offers customers access to a huge fleet of Nvidia's top-performing AI chips, and this has helped its revenue soar. Nvidia has shown that it's a believer in CoreWeave's potential too, as the company has invested in CoreWeave stock. In fact, Nvidia holds $3.96 billion in CoreWeave shares, making this the top holding in the chip designer's stocks portfolio.

All of this helped CoreWeave's shares climb more than 350% from their IPO in March through a peak in June. But from that peak, the stock has since declined about 50% as some investors worry about a billion-dollar acquisition that CoreWeave announced a couple of months ago and a recent deeper-than-expected quarterly loss. Is CoreWeave a stock to buy on the dip or one to avoid? Let's find out.

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Image source: Getty Images.

Access to Nvidia's GPUs

So, first, let's consider CoreWeave's business. As mentioned, the company offers customers the ability to rent access to Nvidia's graphics processing units (GPUs) -- about 250,000 across more than 30 data centers. Of course, CoreWeave faces competition from the large cloud service providers as they too offer customers these top AI chips, but CoreWeave stands out for a couple of reasons. First, CoreWeave built out its platform specifically for AI, so that it can offer customers optimal speed and flexibility. The advantage for those customers is they may complete projects faster and limit their costs.

And second, CoreWeave has repeatedly been the first to offer the general availability of Nvidia's latest chips -- from Blackwell earlier this year to the Blackwell Ultra update just recently. This track record could bring more and more customers to CoreWeave as they know it's sure to have the latest high-power compute available.

Speaking of customers, CoreWeave is seeing positive momentum here. In the recent quarter, the company said demand for its AI cloud services is "aggressively growing" and mentioned gains in customers across industries. CoreWeave also said two major cloud service providers expanded their agreements with the company.

Lifting full-year guidance

Thanks to this demand and AI growth prospects, CoreWeave lifted its full-year guidance for the second time -- it now aims for revenue of $5.15 billion to $5.35 billion, up by $250 million from its earlier forecast.

But as CoreWeave's business requires extensive investment, investors have worried about the company's losses. In the second quarter, it reported a loss per share of 60 cents, missing analysts' estimates for a 20-cent loss per share. On top of this, some shareholders are concerned about CoreWeave's plan to acquire Core Scientific, an AI infrastructure company.

The all-stock deal won't add to debt, but integration of the company with current operations still could result in near-term costs. And here's another potential risk: CoreWeave's structuring of the acquisition as an all-stock operation -- with Core Scientific shareholders receiving CoreWeave shares -- means the current decline in CoreWeave's stock price could upset the terms of the deal.

A buy or a stock to avoid?

So, considering all of this, is CoreWeave a buy on the dip or a stock to avoid? CoreWeave stock, like many young growth companies, carries some risk. The company must invest heavily to build up its offerings to serve customers, and that could delay profitability. The Core Scientific acquisition adds uncertainty in the near term, but it's important to look at how this move will fit in with strategy over the long term. The addition of Core Scientific offers CoreWeave the opportunity to own infrastructure, cutting $10 billion in lease liability overhead down the road. That means this move, though a potential weight on CoreWeave at the moment, could help the company scale up its infrastructure to serve more customers and reduce costs.

Right now, your decision whether to buy CoreWeave depends on your comfort with risk. If you're a cautious investor, you might feel more comfortable watching from the sidelines. Until the Core Scientific deal closes in Q4, the stock could experience some ups and downs.

But if you're a growth investor and comfortable with any fluctuations, now is a great time to get in on this potential AI giant for a reasonable price -- and potentially win as CoreWeave benefits from the ongoing AI boom.

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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.