Should You Stay Invested in or Sell CoreWeave Stock Post Q1 Earnings?

CoreWeave, Inc. CRWV recently reported first-quarter 2025 results, wherein revenues of $981.6 million beat the Zacks Consensus Estimate by 15.2% and jumped 420% year over year.

Following the earnings announcement on May 14, shares of CRWV have gained over 19% and closed last trading session at $80.30. Since beginning trading on March 28, CRWV stock has more than doubled from its initial opening price of $39. 

With substantial gains, the question is whether investors should still remain invested in CRWV stock or book profits and exit. Let’s address this question by evaluating the company’s latest quarterly performance and long-term prospects.

CRWV’s Q1 Earnings Snapshot

CRWV’s first-quarter loss per share of $1.49 came in much wider than a loss of 62 cents in the year-ago quarter. Loss per share includes $177 million of stock-based compensation expense for awards with a liquidity-event performance-based vesting condition, which was satisfied at IPO. 

Adjusted net loss for the quarter was $149.6 million compared with $23.6 million a year ago. Revenue backlog, inclusive of remaining performance obligations and other amounts the company estimates will be recognized as revenues in future periods under committed customer contracts, was $259 billion, rising 63% year over year.

Management inked a strategic partnership with OpenAI for about $11.9 billion while adding several new enterprise customers and a hyperscaler client. It has signed expansion agreements with many customers, including a $4 billion expansion with a big AI-enterprise customer. CRWV added that the $4 billion expansion agreement signed with a big AI client will be reflected in revenue backlog beginning in the current quarter.

Total operating expenses were $1 billion compared with $171.8 million in the year-ago quarter. This was inclusive of a one-time stock-based compensation expense recognized upon completion of the IPO. Adjusted operating income was $162.6 million, up 550% year over year, while adjusted operating margin was 17%, up from 13% in the year-ago quarter.

Where is CRWV Headed From Here?

Increasing demand for AI-cloud infrastructure bodes well. CoreWeave is an AI-focused hyperscaler company, and its cloud platform has been developed to scale, support, and accelerate GenAI. CRWV also highlights that its infrastructure and cloud services are purpose-built and highly optimized for AI workloads, unlike traditional cloud providers whose solutions were originally designed for web-scale applications and are hindered by legacy architectures. It also unveiled next generation of its CoreWeave AI object storage. This is purpose-built for training and inference, offering a production-ready, scalable solution integrated with Kubernetes.

In the first quarter earnings call, CRWV highlighted that AI is forecasted to have a global economic impact of $20 trillion by 2030, while the total addressable market is anticipated to increase to $400 billion by 2028. Apart from scaling capacity and getting adequate financing for infrastructure, CRWV is also expanding its go-to-market capabilities.

CoreWeave now boasts a growing data center network with 33 data centers across the United States and Europe, supported by 420 megawatts of active power.  Moreover, the buyout of the Weights and Biases acquisition has added 1,400 AI labs and enterprises as clients for CoreWeave.

CRWV also works with NVIDIA Corporation NVDA to implement the latter’s GPU technologies at scale. CoreWeave was one of the first cloud providers to deliver NVIDIA H100, H200, and GH200 clusters into production for AI workloads. The company's cloud services are also optimized for NVIDIA GB200 NVL72 rack-scale systems.

Driven by healthy momentum, CRWV expects full-year 2025 revenues to be between $4.9 billion and $5.1 billion. Adjusted operating income is forecasted to be between $800 million and $830 million. For the second quarter, CRWV projects revenues to be between $1.06 billion and $1.1 billion. Adjusted operating income is forecasted to be between $140 million and $170 million.

Challenges Aplenty for CRWV

Management’s commentary surrounding higher capital expenditures is likely to have unnerved investors. CRWV expects capex to be between $20 billion and $23 billion for 2025 due to accelerated investment in the platform to meet customer demand. The company anticipates stock-based compensation to remain slightly higher in 2025 for the grants issued pertaining to the IPO. Higher capex can be a concern if revenue does not keep up required pace to sustain such high capital intensity, especially in a macro environment where AI demand cycles could fluctuate due to competitive pricing and regulatory changes.

High interest expenses could weigh on profitability. In the first quarter, interest expense came in at $264 million, topping expectations. This was attributed to changes in vendor payment terms. The company now guides interest expense to remain elevated, at $260-$300 million in the current quarter. Higher interest expenses can exert pressure on the adjusted net income and potentially affect free cash flow generation.

CoreWeave faces tough competition in the AI cloud infrastructure space, which boasts behemoths like Amazon AMZN, Microsoft MSFT and Alphabet. Amazon Web Services and Microsoft’s Azure cloud platform together dominate more than half of the cloud infrastructure services market. This is likely to have acted as a headwind. CoreWeave’s 77% of total revenues in 2024 came from the top two customers. This intense customer concentration is a major risk, especially if the client migrates, the revenue impact could be material. Apart from this evolving trade policy, macro uncertainty and volatility remain additional headwinds.

CRWV Stock Performance vs Peers

CRWV shares have gained 126.7% in the past month. CRWV has significantly outperformed the 29.6% growth of the Zacks Internet Software industry and the 15.3% increase of the S&P 500 composite. The broader Computer and Technology Sector has risen 22.6% over the same time frame.

The company has outpaced its peers like Microsoft and Amazon. Microsoft and Amazon shares have gained 26.5% and 22.9%, respectively, in the same time frame.

Should You Stay Invested in CRWV Stock?

Staying invested in CRWV stock appears prudent for now due to its strong revenue growth prospects amid surging demand for AI-focused cloud infrastructure. Strategic partnerships with major players like OpenAI and NVIDIA bode well. The company's massive $259 billion revenue backlog and expanding data center footprint position it well for sustained growth.

Despite near-term challenges, such as high capex and customer concentration, its differentiated AI-optimized platform offers a competitive edge. Nonetheless, competition from behemoths is a major concern.

CRWV currently carries a Zacks Rank #3 (Hold), which indicates that investors should wait for a better entry point. However, existing investors can hold the stock as its growth prospects remain intact.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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