Shares of CoreWeave (NASDAQ: CRWV) are rising on Thursday. The company's stock is up 12% as of 1:31 p.m. ET, but was up as much as 17.1% earlier in the day. The move comes as the S&P 500 (SNPINDEX: ^GSPC) gained 1.1%, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was up 2.1% on the day.
CoreWeave, an artificial intelligence (AI)-first cloud provider, saw its shares rise after Meta Platforms and Microsoft released their Q1 earnings. Both companies reiterated their commitment to AI spending.
The spending spree continues
CoreWeave builds and operates data centers specifically designed to provide its computational power to run generative AI models. The company's client list includes both Microsoft and Meta Platforms, as well as Nvidia and IBM. Microsoft confirmed it's on track to spend $80 billion this year on its AI investments, while Meta raised its expected capital expenditures by as much as $7 billion. It now expects to spend between $64 billion and $72 billion.
To be clear, these figures don't directly translate into revenue for CoreWeave, but they show that the companies most critical to CoreWeave's business are continuing to double down on AI. There is still a significant gap between the computational bandwidth these companies have for AI applications and their computational needs. That's where CoreWeave comes in.
CoreWeave has a concentration problem
Despite its recent success, I have concerns about the long-term prospects of the company. One of its biggest issues is that the vast majority of the company's revenue is derived from just a handful of clients, and a significant portion of that from Microsoft alone. This leaves it incredibly vulnerable to a change in how Microsoft operates.
And it's not as if Microsoft isn't interested in cloud computing and operating AI data centers. Microsoft Azure is one of the largest cloud providers in the world.
I would hold off on CoreWeave.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
