Down 24%, Should You Buy the Dip on CoreWeave?

Key Points

• CoreWeave stock dipped of late due to concerns regarding its valuation and potential competition in the cloud infrastructure market.

• Investors would do well to look at the bigger picture, as CoreWeave's growth is solid enough to justify its valuation.

• The company is pulling the right strings to ensure that it remains competitive in the cloud infrastructure space and corner a sizeable chunk of the $400 billion addressable opportunity it sees in this market.

• 10 stocks we like better than CoreWeave ›

It has been less than four months since CoreWeave (NASDAQ: CRWV) went public, and shares of the artificial intelligence (AI) cloud computing company have already shot up a remarkable 245% in such a short period.

However, a closer look at the recent stock price action suggests that CoreWeave has been under pressure lately. The stock hit a 52-week high on June 20 but has since lost almost 24% of its value, as of this writing. Let's examine why this has been the case and look at whether the recent dip in CoreWeave is an opportunity for savvy investors to buy this high-flying stock.

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CoreWeave remains expensive despite its dip

CoreWeave's parabolic jump in a short period following its initial public offering (IPO) led to a sharp spike in its valuation. It was trading at well above 30 times earnings less than a month ago. The latest dip has made the stock relatively cheaper. However, it still commands a premium sales multiple of 25, compared to the U.S. technology sector's average sales multiple of 8.4.

CRWV PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

One of the reasons CoreWeave stock has been sliding of late is because of negative Wall Street coverage stemming from valuation-related concerns, as well as news that AI giant Nvidia could encroach on the former's territory by entering the AI infrastructure-as-a-service (IaaS) market.

But then, selling CoreWeave stock based on valuation concerns and the probability of fresh competition in the AI infrastructure market doesn't look like a smart thing to do. That's because the company appears to be cheap when its stunning growth is factored in. More importantly, it is taking the right steps to ensure that it remains competitive in the lucrative AI-focused cloud infrastructure market.

Investors need to look beyond the valuation

For a company that expects to finish 2025 with $5 billion in revenue, up substantially from its 2024 reading of $1.9 billion, a sales multiple of 25 seems justified. Additionally, CoreWeave has enough fuel in the tank to keep growing at such astronomical rates in the future, when we consider it had a revenue backlog of almost $26 billion at the end of the first quarter. That metric shot up 63% year over year, suggesting that the demand for its cloud AI infrastructure remains solid.

That's not surprising, as customers have been rushing to book cloud infrastructure capacity, the likes of which CoreWeave provides, so that they can train and deploy AI models and applications. Oracle, the other key player in the cloud IaaS market, witnessed a 41% year-over-year increase in its remaining performance obligations (RPOs), reaching a whopping $138 billion in the previous quarter.

RPO refers to the total value of a company's contracts that are yet to be fulfilled at the end of a quarter. So, we can conclude that CoreWeave is landing new contracts at a faster pace than Oracle, an already established player in this space. It is worth noting that CoreWeave's growth could have been much higher than what it is already clocking, but the company is constrained by data center capacity, as management remarked on the company's May earnings conference call.

This explains why CoreWeave says it is "scaling as fast as it can to meet the demands of [its] customers." The company said on its previous earnings conference call that it already raised $21 billion to expand its data center capacity so that it can corner a bigger chunk of the $400 billion addressable market it anticipates by 2028.

CoreWeave reported 33 AI-focused data centers at the end of Q1, with a cumulative power capacity of 420 megawatts (MW). It added an impressive 300 MW of contracted power capacity to its portfolio during the quarter. This took its total contracted power capacity to 1.6 gigawatts, suggesting it is well placed to quadruple its overall capacity going forward.

And now, the company's decision to acquire Core Scientific in a deal valued at $9 billion is likely to help it further improve its capacity. Core Scientific has 1.3 GW of existing power capacity, with the potential to expand by another 1 GW. CoreWeave has already contracted nearly two-thirds of Core Scientific's capacity. It points out that it has the option to convert the rest into AI-focused infrastructure, rather than its current purpose of cryptocurrency mining.

Additionally, CoreWeave CFO Nitin Agrawal says the acquisition will deliver solid synergies for its bottom line:

First, we'll see the immediate elimination of more than $10 billion in future lease liability overhead, costs that were otherwise committed across existing contractual sites over the next 12 years. Including the elimination of lease overhead and a more streamlined and efficient operational model, we anticipate $500 million in fully ramped annual run rate cost savings by the end of 2027.

This likely explains why analysts expect the company to become profitable next year, followed by a sharp spike in its bottom line in 2027.

CRWV EPS Estimates for Current Fiscal Year data by YCharts. EPS = earnings per share.

Moreover, the sizable addressable market that CoreWeave can capitalize on suggests it can sustain its remarkable growth levels beyond the next couple of years as well. That's why it may be a good idea for growth-oriented investors to accumulate this AI stock following its recent slide, as its outstanding growth and bright potential could result in more upside on the market.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Oracle. The Motley Fool has a disclosure policy.