Why CoreWeave Stock Plummeted Today

Key Points

• CoreWeave stock sank today after Needham lowered its rating on the stock from buy to hold.

• CoreWeave's $9 billion all-stock acquisition of Core Scientific has some investors feeling jittery about valuations.

• 10 stocks we like better than CoreWeave ›

CoreWeave (NASDAQ: CRWV) stock got hit with a big pullback in Thursday's trading. The company's share price fell 9.6% in a session that saw the S&P 500 (SNPINDEX: ^GSPC) rise 0.3% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) trade essentially flat with the previous day's close.

CoreWeave's valuation took a hit today after an investment firm pivoted away from its bullish position on the stock in new coverage. Despite the pullback, the company's share price is still up roughly 246% from market close on the day of its initial public offering (IPO) in April.

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CoreWeave stock sinks following new coverage from Needham

Needham published updated coverage on CoreWeave before the market opened today and lowered its rating on the stock from buy to hold. While the investment firm did not issue a price target for the stock, it raised valuation concerns despite also noting that it sees the roughly $9 billion all-stock acquisition of Core Scientific as a good fit for the company. The acquisition is set to further bolster CoreWeave's processing capacity for artificial intelligence (AI) applications, but the company will also be issuing a lot of new stock to fund the deal.

What's next for CoreWeave?

CoreWeave's acquisition of Core Scientific is expected to close in the fourth quarter and represents a major step in the push to bolster positioning in AI processing and high-performance computing. The combination of the two businesses should be beneficial for CoreWeave and strengthen its processing footing, but it's also not surprising to see the stock pulling back following news of the big, all-stock buyout. Using new shares to fund the deal on the heels of a big run-up for the stock may not be an issue over the long term, but it may be raising valuation concerns for some investors.

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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.