CoreWeave Stock Has Lost More Than a Third of Its Value in 3 Months. Time to Buy?

CoreWeave (NASDAQ: CRWV) stock's recent pullback is providing investors a masterclass on why valuation matters. On Monday, the company said its third-quarter revenue more than doubled year over year and its net loss narrowed significantly. Yet shares took a big hit, extending a slide that began ahead of the report. While there are several drivers behind the stock's decline, a stretched valuation has been the primary culprit.

As an AI (artificial intelligence) infrastructure provider that leases cutting-edge chips and capacity to hyperscalers, the company has benefited from euphoric expectations during this aggressive AI buildout. With its business closely tied to the AI boom, shares have ridden the wave of spending on new data centers supporting AI computing. But there's a flipside to the massive valuation the stock commands: Any uncertainty about the durability of that buildout can spark skittishness -- and that's exactly what's happening.

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Why soaring growth isn't enough

CorweWeave's third-quarter revenue jumped to $1.36 billion in the third quarter, up from $584 million a year ago, and its net loss improved from about $340 million in the year-ago quarter to $110 million. CoreWeave also highlighted a $55.6 billion revenue backlog, aided by new multi-year commitments from marquee customers, including Meta Platforms, and an expanded partnership with OpenAI.

But CoreWeave's guidance moved the wrong way. Management now expects 2025 revenue between $5.05 billion and $5.15 billion -- lower than the prior outlook that stretched as high as $5.35 billion -- citing a delay at a third-party data-center provider that pushes some revenue out in time. That revision, not the quarter itself, is likely what sparked a sell-off in the stock price. In the context of the stock's valuation, investors show little forgiveness for lowered expectations.

The valuation dilemma

With a market capitalization of about $43 billion following the post-earnings sell-off, CoreWeave trades at a robust price-to-sales ratio of 10. Considering that the company still doesn't report any generally accepted accounting principles (GAAP) profits, this is a very high valuation.

Further, the backdrop supporting CoreWeave's growth story involves significant uncertainty. For instance, Meta shares sold off sharply recently after the company revealed massive data center-driven capital spending plans for 2026. The market's reaction suggests that investors are uncertain whether the company can earn sufficient returns on its massive spending. If the market proves to be right, companies could rein in their spending plans.

In other words, hyperscalers' incredible budgets for AI computing are a double-edged sword for CoreWeave. On the one hand, it reaffirms the company's near-term path to continued rapid growth. However, the sheer size of spending increases the odds of a period of reduced spending later on. Put another way: Meta's plan to spend more than $100 billion on capital expenditures next year doesn't seem sustainable. So, what would happen to CoreWeave if this AI investment cycle proves to be, unsurprisingly, cyclical?

Consider one more wrinkle. Management's updated outlook reflects a third-party construction delay rather than a demand problem. This begs the question: Can the company really build out capacity as fast as it thinks it can?

The bull case for CoreWeave stock is obvious: Deep ties to big AI customers could lead to rapid growth for years to come, helping the company achieve sufficient scale to report substantial profits. But the catch is just as clear: No one can predict when the peak of the current AI investment cycle will come, and shares are already priced for an extremely upbeat scenario.

So, is the latest pullback in CoreWeave's price a buying opportunity? Unfortunately, I don't think so. In my opinion, the risks remain too high given the stock's premium valuation.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.