Why Did CoreWeave Stock Surge This Week?
Key Points
Meta and Anthropic are going to CoreWeave to power their AI needs.
Capacity costs money, and CoreWeave raised more capital this week.
Investors need to see a pathway to profitability.
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Shares of artificial intelligence (AI) cloud platform company CoreWeave (NASDAQ: CRWV) have soared this week. As of Friday afternoon, the stock was 29.3% higher for the week, according to data provided by S&P Global Market Intelligence.
Two big announcements spurred the move. But investors need to balance the new business gains against the company's continued losses.
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Growth costs money
The two big announcements driving CoreWeave shares higher this week included a $21 billion AI infrastructure agreement with Meta Platforms to expand an existing relationship to provide Meta with AI cloud capacity through 2032. Another deal was made between CoreWeave and AI research and development company Anthropic.
That multi-year agreement will provide Anthropic with compute capacity starting later this year to assist in the creation and implementation of its Claude series of AI models. While those contract wins are great for CoreWeave, investors have to keep an eye on its rising costs, too.
CoreWeave announced an offering of $3.5 billion in convertible notes this week as well. That fresh capital raise should serve as a reminder to investors that growth costs money. The rapidly rising stock price suggests that investors believe CoreWeave will deliver a substantial return on its cloud infrastructure investments.
With a $50 billion valuation, the market has already priced in the expectation of strong profitability. Investors may want to wait for inevitable dips to add CoreWeave to a portfolio.
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Howard Smith has 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.
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