CoreWeave shares drop as growing losses eclipse AI demand surge

Microsoft has signed an artificial intelligence computing deal with startup CoreWeave. (Photo credit CFOTO/Future Publishing via Getty Images)

CoreWeave shares sank 10 per cent in premarket trading on Wednesday after the Nvidia-backed company posted a bigger-than-expected loss, raising doubts about its ability to keep costs under check amid robust AI demand.

Its results underscore the tension between its rapid revenue growth and mounting financial strain as operating expenses jumped nearly fourfold to US$1.19 billion in the second quarter.

Analysts have turned skeptical of CoreWeave’s excessive dependence on certain customers and its ability to grow profitably due to widening losses, heavy capital needs and deteriorating debt coverage.

The company on Tuesday posted a net loss of $290.5 million, compared with analysts’ average estimate of $190.6 million, according to data compiled by LSEG.

“CoreWeave does not currently generate enough profit to pay all its debt holders, certainly not equity holders,” D.A. Davidson analysts said.

The company had around $8 billion in debt as of last year and had said in March that it would use about $1 billion of the IPO proceeds to repay debt.

CEO Michael Intrator said the company is scaling rapidly to meet “unprecedented demand for AI,” but noted that “accessing power shells capable of delivering the scale of infrastructure our clients require” remains the biggest constraint.

“This continues to be a business that is not worth scaling,” D.A. Davidson analysts said.

CoreWeave operates 33 AI data centers in the U.S. and Europe, offering access to backer Nvidia’s GPUs, which are highly sought after for training and running large AI models.

Surging demand for its AI infrastructure helped the company top quarterly revenue estimates. Its stock price has jumped nearly three-fold since its IPO in March.

Investors will seek clarity on the lock-up period related to the company’s IPO, which could expire later this week compared to the typical six-month time frame. Sometimes, a stock is pressured when the lock-up ceases.

Barclays analysts said the company’s operating cash flow and capital expenditure for the quarter could be scrutinized going into the lock-up expiry.

(Reporting by Rashika Singh in Bengaluru; additional reporting by Lance Tupper in New York; Editing by Arun Koyyur)