Wall Street Didn't Understand CoreWeave, Its CEO Said. Now the Stock Is Soaring.

CoreWeave (NASDAQ:CRWV) stock jumped more than 15% in premarket trading on Wednesday, a day after the company's third-quarter earnings report. Considering that CoreWeave had lost more than 40% of its value in the last month, the move higher was a welcome reversal.

Less than a month ago, CEO Michael Intrator was telling his employees that Wall Street doesn't understand his company. Following Tuesday's third-quarter earnings report, investors may be starting to see things his way.

Here's what you should know about CoreWeave's earnings report.

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Customers are signing up for years of future business

CoreWeave operates data centers filled with powerful computing equipment that AI companies rent to train and run their models. It's an expensive business, requiring enormous investments in infrastructure before customers can use that computing power.

CoreWeave generated $3.66 billion in third-quarter revenue, up a whopping 168% from $1.37 billion a year earlier. Management also raised its full-year revenue forecast to between $13 billion and $13.3 billion.

But the most impressive number may have been its $132.5 billion revenue backlog as of Sept. 30. The backlog represents business that customers have already contracted for, but CoreWeave hasn't delivered. So, customers have committed to purchasing billions of dollars in computing capacity over the coming years.

That's a meaningful distinction for investors worried that AI infrastructure spending could be outpacing demand.

Debt is still the biggest risk

CoreWeave's growth isn't coming cheaply. Despite its soaring revenue, the company reported a $709 million net loss during the quarter. The company has about $47 billion in debt, and its interest payments reached $846 million in the quarter.

That's a burden that has weighed heavily on CoreWeave stock in the past. So it was notable that during the Nov. 10 earnings call, Chief Financial Officer Nitin Agrawal indicated CoreWeave doesn't intend to issue additional unsecured debt at the parent-company level through 2027 at current yields. Instead, the company plans to rely on financing secured by specific assets and customer contracts.

CoreWeave also expects approximately $9 billion in customer prepayments over the next three months, providing another source of funding. But the company still expects capital expenditures of $37 billion to $39 billion this year. That's an extraordinary amount of spending, even for a business growing as quickly as CoreWeave.

Profitability is improving, but interest costs remain a problem

There was encouraging news on the profitability front. CoreWeave generated $379 million in adjusted operating income during the third quarter, representing approximately 10% of revenue. That's up from an adjusted operating margin of roughly 1% in the first quarter.

Management also said the company has raised prices this year, suggesting customers remain willing to pay more for its computing capacity.

But CoreWeave's borrowing costs are still enormous. The company expects interest expense of between $1.05 billion and $1.15 billion in the fourth quarter, substantially more than the adjusted operating income it generated in the third quarter. Management expects to achieve profitability on an adjusted basis during the first half of 2028.

For investors, the next few quarters will be particularly revealing. CoreWeave has demonstrated that demand for its services is real, and its operating margins have improved.

Now it needs to prove that profits can grow faster than the interest expense required to finance that growth.

Patrick Sanders 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.