CoreWeave is Nvidia’s largest investment.
CoreWeave is providing AI-focused cloud computing infrastructure to its clients.
The biggest issue surrounding CoreWeave is its profit margin.
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Nvidia (NASDAQ: NVDA) has been one of the undisputed winners of the artificial intelligence (AI) investing trend. It’s a critical supplier of high-powered computing software, and it knows where the money is flowing in the AI race. So, if Nvidia takes a stake in a company, investors should pay attention.
According to Nvidia’s latest 13-F filing, it only holds shares of six stocks. Its largest investment by far is CoreWeave (NASDAQ: CRWV). Nvidia’s stake in CoreWeave totals over 24 million shares, worth over $3 billion. CoreWeave’s stock has more than tripled since going public earlier this year, but is still about 25% off its all-time high set in July.
With CoreWeave being backed by one of the most successful companies in the world, is it worth buying right now?
Not every company competing in the artificial intelligence race has the capabilities to build a giant data center filled with the most cutting-edge chips from Nvidia. They need to rent compute from another company that does. This isn’t a new business model; cloud computing companies have been doing this for years. However, only CoreWeave’s platform is specifically marketed and designed to fulfill AI needs.
This has caused rapid growth in CoreWeave’s business. In Q2, revenue rose 207% year over year to $1.2 billion, with its revenue backlog (deals that it has signed and has yet to realize revenue on) rising 86% year over year to a jaw-dropping $30.1 billion. Few companies have that level of revenue visibility, but CoreWeave has already locked up several years’ worth of business.
After seeing numbers like that, it’s no wonder the stock has been popular with investors and that Nvidia is a major investor in this business.
At the same time, why is CoreWeave’s stock down from its high if it’s seeing that kind of success? It all comes down to CoreWeave’s profits (or lack thereof).
CoreWeave isn’t producing any net income. Most of the time, I’m OK with emerging and growing businesses operating at a loss as they capture market share. However, it doesn’t make as much sense for CoreWeave to do so.
Graphics processing units (GPUs) from Nvidia have a relatively short lifespan. There are some estimates that GPUs last in Google Cloud’s cloud platform for anywhere from one to three years. With that short a lifespan, CoreWeave will need to swap out GPUs quite often. As a result, it’s not going to be a business that benefits from scale. A significant portion of its expenses will recur every couple of years when its computing units burn out.
