Don't Even Think About Buying CoreWeave Stock Until You Read This

CoreWeave (NASDAQ: CRWV) has posted explosive gains amid surging demand for artificial intelligence (AI) data center services. Since the market close on the day of the company's initial public offering (IPO), the stock has risen approximately 119%. On the other hand, shares are also down 52% from the 52-week high it hit in June.

With a market capitalization of approximately $39 billion, CoreWeave is valued at approximately 3.6 times expected forward sales. Given the company's incredible rate of sales expansion, the stock could actually look quite cheap on a price-to-sales basis -- but there are some big questions connected to the business's infrastructure buildout and path to profitability.

Read on for a look at the crucial issue that could shape the stock's performance.

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Server lifecycles will be crucial for CoreWeave stock

Even after cutting its forecast by roughly 40%, CoreWeave still targeted capital expenditures between $12 billion and $14 billion for 2025. With planned spending from last year getting pushed into 2026, the company could be looking at capex of roughly $30 billion this year. CoreWeave is spending massive amounts to secure top-of-the-line processing and networking tech from Nvidia and other providers, and high-performance infrastructure could help sales continue to soar amid rising AI compute demand.

Much of the current valuation debate on the company centers around the useful lifecycle of its servers. CoreWeave wants to leverage the graphics processing units (GPUs) it's spending big on for as long as possible to recoup its investments and forge its path to profitability. However, there's still a fair amount of uncertainty as to how its current modeling will pan out.

As Nvidia has released new graphics processing units (GPUs), companies have been willing to pay high premiums to own the most advanced hardware or purchase processing services built on the tech. The launch of more powerful hardware also reduces demand for older systems, and CoreWeave has to estimate how demand for previous generations of GPUs will evolve over time.

Given the high levels of energy consumption associated with current GPUs and resulting power supply challenges, improving energy efficiency is likely to be an even bigger focus for Nvidia and other GPU designers going forward. Depending on how that dynamic and other hardware performance trends shake out, CoreWeave's server infrastructure could wind up having useful lifecycles that are far shorter than expected. If that turns out to be the case, the company and its investors are likely in for a rough ride.

The uncertainty surrounding the useful lifecycles of GPUs helps explain why CoreWeave trades at relatively modest price-to-sales ratios despite more than tripling revenue annually across last year's first three quarters. The stellar demand outlook for AI processing suggests the stock could go on to be a huge long-term winner, but there's a lot of risk connected to current hardware lifecycle forecasts.

Keith Noonan 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.