A Critical Earnings Report Ahead

CoreWeave, which is a very important cloud computing name and a big reason for the AI boom, is coming in front of the investors with its quarterly earnings, which are to be announced after the bell on Monday. 

Sadly, the timing could not be worse. The tech stocks, CoreWeave among them, experienced a huge downside. The stock price declined 22% during the last week, which was a result of investors escaping tech stocks, thus reversing the months-long cheerful AI trend that had already driven the S&P 500 index to new highs. 

So, with the big investors on the street wondering if the giant AI investments are sustainable, CoreWeave’s results are likely to become a decisive turning point of not only one more earnings report, but also if the AI trade still has profitability or not.

The Dilemma of Growth & Spending

CoreWeave’s story reveals the dominant contradiction in the AI economy, which is that the growth appears to be very attractive on the surface but it consumes cash at an extraordinary speed. 

The analysts are of the opinion that the company will report a revenue of $1.3 billion, in the case of which the quarterly revenue will be more than 2 times that of the previous year’s revenue, but still no profitability can be seen. 

Also, the analysts project a loss of 36 cents per share on an adjusted basis, which is lower than the previous quarter’s 53 cents, while the margins are also expected to contract from 21% to 14%.

On one hand, the CEO of CoreWeave, Michael Intrator has discussed that this spending is a production of the company’s holding of demand that is coming from businesses with enormous computing requirements, such as Meta, Microsoft and, Alphabet. 

On the other hand, critics like Dave Mazza, CEO of Roundhill Financial mentions the weakness of the model by saying,

“Investors have gotten a lot more sensitive to the balance between growth and spend. Doubling revenue is great, but if capex is climbing even faster, that math doesn’t work forever.”

The general issue is circularity, many AI firms are CoreWeave’s clients and at the same time, they are its beneficiaries. This very intricate spending network has been a cause of uneasiness in the market, particularly because investors want clearer signals of sustainable profitability instead of exponential, debt-fueled growth.

Market Sentiment

Analysts such as Bloomberg Intelligence’s Anurag Rana contend that its long-term demand is still intact, referring to it as “they are the number one neocloud.” If one major client leaves, the others will likely step in, considering AI’s huge appetite for computing infrastructure. 

Yet Wall Street’s patience is wearing thin. In August, the market punished CoreWeave for a wider loss and weak outlook, sending the stock 21% lower in one day. Since then, shares are off 30% but remain more than 160% higher since its Nvidia-backed IPO in March, which is an indication of just how unpredictable and sentiment driven the AI trade has become.

CoreWeave’s failed takeover attempt for Core Scientific has not only added to the uncertainty but also raised doubts about its expansion plans. 

Nevertheless, the talk around the deals is that the company is reportedly doubling its recurring purchase orders up to $60 billion, which indicates that there is some resilience underneath the chaos. 

Investors will be closely monitoring the company’s forward guidance and any sign of positive cash flow, which will be a milestone that could help restore the trust.

Bottom Line

At present, CoreWeave finds itself in the middle of the road between optimism and overstrain. The AI revolution is not over, but it might be going into a phase where the performance of the players, not their promises, will determine who gets to stay through the next market transformation. 

The trio of profitability, predictability, and transparency is what the company will be relying on. It has already survived through the storms of market corrections, missed targets, and takeover acts, but this new phase will demand more than resilience, it will require restraint.