CoreWeave’s stock extended its sharp downward trend, while its bond yields surged this week as investors remained concerned about the neocloud industry. CRWV fell to $57, its lowest level since May 9 last year. The stock has slumped more than 67% from its peak this year, wiping out billions of dollars in market value. So, is this retreat a good buying opportunity?
CoreWeave stock is falling despite soaring demand
CoreWeave, a former Bitcoin mining company that has successfully pivoted towards the artificial intelligence industry, is doing well. It has become the biggest company in the neocloud industry, clinching deals with the biggest companies in the space like Anthropic, OpenAI, and Jane Street.
The company is benefiting from the ongoing demand for computing power, which analysts believe has more room to go. In a statement today, Jensen Huang, Nvidia’s CEO, said that demand for neoclouds was off the charts, with capital being the only challenge. He said:
“If you look at the fundamentals, the demand for the neo clouds is off the charts. What is missing in the middle is the working capital to fuel that growth because there’s just so much demand across so many sectors of AI, capital is scarce.”
Just this week, the WSJ noted that Anthropic’s S1 document showed that its future infrastructure costs will top $600 billion. It is now negotiating additional computing deals that could see commitments rise by as much as $150 billion. In this case, it may negotiate with CoreWeave.
Strong revenue and backlog growth
The recent results showed that the company’s revenue backlog jumped to $104 billion at the end of the June quarter. This surge made it the biggest company in the neocloud industry. It is also fueling its strong revenue growth, with the quarterly figure rising to $2.57 billion from $1.2 billion in the same period last year.
Wall Street analysts believe that CoreWeave has more room for growth, with the annual revenue expected to hit $12.87 billion, followed by $26.35 billion next year. If this trend continues, chances are that the company’s annual revenue will hit $50 billion in the foreseeable future.
The challenge, however, is that the company’s financing costs are elevated. Its bond yields have continued to rise, with some long-term ones yielding 15%. Also, its total debt has jumped to nearly $30 billion.
Also, some analysts believe that the company will need to announce huge impairments in the coming years. In a report released last week, Gartner said that AI data center owners will need to make a cumulative $8.5 trillion in revenue to cover the rising capital spending. It expects the total revenue to be no more than $3.6 trillion. The report added:
“Neoclouds will be among the most exposed to the imbalance between revenue and capital spending. Neoclouds must soon earn returns on AI-optimized IaaS and associated platforms to sustain operations.”
CoreWeave stock price technical analysis
The daily chart shows that the CRWV stock has been in a strong sell-off this month and is now at the lowest level in months. The risk is that it has formed a head-and-shoulders pattern, which is a common bearish sign.
CoreWeave remains below all moving averages, while the Relative Strength Index (RSI) has moved to the oversold level of 30. The combination of the H&S pattern and the moving averages suggests that the stock will continue falling in the near term. If this happens, it will drop to $35.