Understanding the surge in CoreWeave's stock
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CoreWeave's losses doubled, its spending soared and it devoured almost $6 billion more in cash than it generated last quarter. Investors loved it.
Why it matters: Some see CoreWeave, a so-called neocloud that builds data centers and sells AI computing power, as the canary in the coal mine of the AI trade.
- After the report, that canary was tweeting and flying high.
The latest: Shares of the neocloud soared 19% after it reported second-quarter results the previous evening.
- CoreWeave's numbers were broadly consistent with what we've been hearing from hyperscalers and others.
- Sales and backlog showed rising demand for AI compute, as revenue more than doubled, to $2.58 billion.
- Remaining performance obligations, a measure of sales backlog, jumped 245% to $103.7 billion.
Yes, but: The company's losses are getting deeper for every dollar of sales it collects.
- Its adjusted net loss worsened to $567 million from $130 million during the same quarter last year. (According to stricter GAAP accounting rules, the loss was worse, $626 million.)
- CoreWeave's adjusted net loss margin — or how much it loses for every dollar of sales, excluding certain items — declined to -22% from -11%.
- And the company's free cash flow, considered one of the highest-quality earnings indicators, was negative $5.74 billion, a sharp deterioration from negative $2.70 billion the previous year, according to FactSet.
What they're saying: Bulls are keeping the faith, while skeptics are, um, skeptical.
- "Overall, results/guide reflect a robust demand/constrained supply backdrop that should continue to drive revenue growth/margin expansion momentum," wrote Evercore ISI analyst Amit Daryanani.
- "While guidance went up on every line," wrote Madison Rezaei, an analyst with Bernstein Research. "Capex went up higher than all of them."
- "We're still not fans of the model," she later added.
Between the lines: While some deference to the market's reaction may be due, that should likely come with a few grains of salt as well.
- We're not the only ones who've noticed the company's problems with profitability. And as a result, a large short position has grown in the stock.
- The most recent data showed more than 20% of CoreWeave's float in the hands of short sellers.
- Since shorts have to buy the stock to exit, or cover, their trades, a move higher in a heavily shorted stock like CoreWeave can create a mad rush to exit positions, generating something known as a squeeze.
- That could be part of what's happened with the stock Wednesday.
The bottom line: If one wants a clean read on CoreWeave, it could be illustrative to take a look at what insiders have been doing recently with their holdings.
- As the chart below shows, what they definitely haven't been doing is buying — at least in the aggregate — and that's pretty interesting in itself.
