Can a $10,000 Investment in CoreWeave Stock Make You a Millionaire?

Key Points

• CoreWeave is a major provider of computing power in the artificial intelligence (AI) realm.

• Revenue is rapidly rising due to massive AI computing demand.

• CoreWeave still has a ways to go before turning profitable.

• 10 stocks we like better than CoreWeave ›

Artificial intelligence (AI) training requires a massive amount of computing power that few can wrap their minds around. The primary provider of this computing power in the AI arms race has been Nvidia (NASDAQ: NVDA), with its graphics processing units (GPUs). These general-purpose computing devices power nearly all the development of AI models that we know today, and demand for them is still rising.

However, these are expensive devices and require a ton of development to create a data center that houses them. It can take years and billions of dollars to construct these data centers. Still, the demand for AI computing power is occurring right now, and leading companies can't afford to wait around while their data centers are being built.

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This creates an opportunity for companies that own Nvidia GPUs to rent out their computing power. This is typically done with major cloud computing providers. Still, none of them specialize in offering computing clusters solely for artificial intelligence (AI), which is where CoreWeave (NASDAQ: CRWV) comes in.

This exciting player has only recently come to public attention. With massive AI computing demand, could it turn $10,000 into $1 million? Let's find out.

Image source: Getty Images.

CoreWeave's business is rapidly growing

CoreWeave went public in late March this year, originally priced at $40 per share. The market was fairly unreceptive of the IPO until it caught fire in May. That's when its $50 stock soared all the way to $183 in June. The stock has cooled off a bit since then and now trades for about $133, although it dropped below $100 a few weeks ago.

The most recent boost for CoreWeave's stock came from an announcement that it secured $6.3 billion in GPUs from Nvidia. This shows that it's considered a major Nvidia customer, and that its business model to rent out Nvidia GPUs for AI purposes is working.

This is backed up by CoreWeave's stellar Q2 results, which saw its revenue rise 207% year over year to $1.2 billion. However, this pales in comparison to its massive revenue backlog, which increased 86% to $30.1 billion. Securing a massive GPU order from Nvidia brings converting that backlog to actual revenue a reality.

However, there's one sticking point with CoreWeave's business. It isn't profitable.

CoreWeave needs to figure out how to turn profitable

In Q2, CoreWeave posted a net loss margin of 24%. While this may seem common for a company that's just getting started and looking to capture all the market share it can, I think it's a problem.

CoreWeave's basic business model is to buy an Nvidia GPU, then rent out its computing power. The basic economics of this transaction are to rent out the GPU for more money than it costs to purchase, operate it, and pay overhead. With how quickly these GPUs burn out (some estimate that AI-focused GPUs have a lifespan of one to three years), CoreWeave isn't really going to benefit that much from scale. The majority of the cost comes from operating and procuring these units, so CoreWeave not being profitable is a red flag.

Furthermore, the major AI hyperscalers are continuously building out their AI computing power. As their internal capabilities increase, they won't need to rent as much from CoreWeave. This isn't the end of CoreWeave's business, as most of these companies will likely keep some demand on CoreWeave's servers to handle peak capacity, but I doubt that CoreWeave's growth will continue at its rapid pace forever.

As a result, I don't think CoreWeave is a million-dollar stock. Although times are good for CoreWeave right now, I don't anticipate it being that way forever. Instead of CoreWeave, I think many of the AI hyperscalers are much better buys, or you can scoop up Nvidia itself to capitalize on the massive AI build-out trend.

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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.