CoreWeave, the NVIDIA-backed AI data center company, announced this week that it plans to spend between $20 billion and $23 billion in 2025 to grow its AI infrastructure.
The company said this massive investment is meant to keep up with soaring demand from tech giants like Microsoft and OpenAI. The spending news came during CoreWeave’s first earnings report since going public in March.
On Wednesday, CoreWeave revealed a capital expenditure outlook far exceeding Wall Street’s expectations. Yahoo Finance reported that analysts had predicted spending around $18.3 billion, much less than the upper end of CoreWeave’s target, citing Bloomberg consensus estimates.
The bulk of this money is going into AI infrastructure, high-performance data centers loaded with NVIDIA GPUs to power the AI boom. CoreWeave rents out these resources to big tech firms racing to build smarter generative AI tools.
During the earnings call, Chief Financial Officer Nitin Agrawal explained that the investment is “fundamentally driven by increased customer demand.”
Wall Street’s mixed reaction
And yet, investors weren’t entirely sold. CoreWeave’s stock initially rose as much as 11% on better-than-expected revenue but dropped by 5% on Wednesday. The dip continued on Thursday, with the stock closing at 2.5%, as reported by Reuters.
Analysts worry that CoreWeave’s spending may be outpacing its income. Gil Luria, an analyst at D.A. Davidson, said in an interview with Yahoo Finance, “The risk is this is a company that is borrowing at extraordinarily high interest rates in order to buy a product that depreciates very rapidly in terms of its economic value.”
Luria downgraded the stock from “Neutral” to “Underperform” on Thursday, pointing to the firm’s $12 billion in debt and soaring interest expenses, which reached $264 million in Q1.
OpenAI and Microsoft deals offer promise
Despite the financial risks, CoreWeave has locked in major deals.
A new $4 billion agreement with OpenAI was disclosed Thursday in a regulatory filing, building on an existing $11.9 billion, five-year deal signed in March. Under these agreements, CoreWeave supplies cloud computing power to OpenAI in exchange for payment and a stake in the company.
Microsoft remains CoreWeave’s largest customer, responsible for 72% of its $981.6 million Q1 revenue, according to SEC filings. Luria said much of that revenue supports OpenAI-related services.
CoreWeave also hinted at signing a new “hyperscaler” client during its earnings call, though the company declined to name them. Analysts at Morgan Stanley and MoffettNathanson speculate the client could be Google parent Alphabet, citing previous media reports that Google had been in talks to rent NVIDIA chips from CoreWeave.
Analysts split on future
CoreWeave’s stock has jumped over 68% since its Nasdaq debut, and at least seven brokerages have raised their price targets to between $50 and $80. However, the company is still unprofitable, posting an adjusted net loss of about $150 million for the first quarter, far worse than the $41.7 million analysts had expected, Yahoo Finance noted, quoting Bloomberg’s data.
While some analysts are upbeat, others remain cautious.
“CoreWeave represents overflow capacity for Microsoft, which may not need that capacity in the future,” Luria warned.
Even so, the company projects annual revenue between $4.9 billion and $5.1 billion, beating Wall Street’s $4.61 billion estimate.