CoreWeave Inc (NASDAQ: CRWV) posted market-beating second-quarter revenue and cash flow, driven mostly by accelerated graphics processing unit (GPU) deployment on Wednesday.
The Livingston-headquartered firm also issued encouraging guidance on AI infrastructure demand, with CEO Michael Intrator citing “unprecedented” scaling needs in the earnings release.
Still, CoreWeave stock opened some 11% down today, though it’s still trading at more than 3x its initial public offering (IPO) price of $40 per share in late March.
Why is CoreWeave stock slipping on Q2 earnings?
Investors are choosing caution on CRWV shares this morning primarily because the AI company’s backlog as represented by remaining performance obligations (RPO) came in shy of estimates.
In a CNBC interview today, MoffettNathanson analyst Nick Del Deo argued RPO softness signals weaker-than-expected new bookings, reinforcing concerns about limited revenue diversification and overreliance on a handful of long-term contracts.
Additionally, the artificial intelligence infrastructure firm’s operating cash flow and planned capex disappointed again in Q2, which may also be contributing to the CoreWeave stock price decline on Wednesday.
Should you buy CRWV shares on post-earnings decline?
While revenue more than tripled for CoreWeave to $395 million in the second quarter, caution is warranted in buying the post-earnings dip in the AI stock given its lockup period expires tomorrow (August 14) after the bell.
It’s reasonable to assume that insiders and early investors will choose to trim their stakes in CRWV stock as the lockup expires since it’s currently up well over 250% versus its YTD low in late April.
And if they decide in favor of taking profit to capitalise on that explosive rally – CoreWeave stock could pullback rather significant over the next few weeks.
According to Nick Del Deo, the Nasdaq-listed firm is also gated by data centre capacity and GPU procurement – and while its recent acquisition of Core Scientific is aimed at mitigating these risks, that buyout deal itself could be tested as the lockup period expires.
“Any downward pressure resulting from increased share supply or insider selling could affect the deal dynamics and increase investor opposition,” said Greg Miller – a senior Citizens JMP analyst in his research note today.
Note that MoffettNathanson currently has a $56 price target on CRWV shares, indicating potential downside of another 60% from here.
CoreWeave shares are egregiously overvalued
Despite the post-earnings pullback, CoreWeave shares remain significantly overvalued.
At the time of writing, the price-to-sales (P/S) multiple on the AI stock sits at roughly 26, which, while lower than the likes of Nvidia, signals stretched valuation given CoreWeave lost 21 cents on a per-share basis in its fiscal Q2 and has minimal revenue diversification.
And while valuation alone shouldn’t drive investment decisions, the multiple on CRWV stock, at the very least, suggests there may be better ways to play AI stocks than CoreWeave Inc.
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