The Hype Around CoreWeave's $21 Billion Meta Deal Faded Fast, but Could Investors Be Missing Out?
Key Points
Meta Platforms is committing to spending $21 billion more for CoreWeave's AI capacity.
CoreWeave also said it was raising $4.25 billion in new debt.
The company is unprofitable, but growing quickly as it capitalizes on the AI infrastructure boom.
CoreWeave (NASDAQ: CRWV) is one of the fastest-growing AI stocks on the market, regularly reporting triple-digit revenue growth rates, even as the company is set to top $10 billion in revenue this year.
However, investor skepticism toward the neocloud operator has built since the stock peaked last June as its losses are mounting and it continues to take on new debt to fund its data center build-out.
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Investors got another taste of that volatility on Thursday as cheers over a new deal with Meta Platforms (NASDAQ: META) quickly faded.
Image source: Getty Images.
What's happening with Meta and CoreWeave
CoreWeave said today that it would expand its agreement to sell AI cloud capacity to Meta Platforms by around $21 billion through 2032. The new capacity will include some initial deployments of Nvidia's highly anticipated Vera Rubin platform.
The announcement comes just a day after Meta launched a new large language model, Muse Spark, which is receiving positive reviews.
For CoreWeave, the Meta deal will help it further diversify its revenue base, as the company has relied on Microsoft to provide more than half of its revenue. With the Meta contract on the books, no customer will represent more than 35% of the company's sales.
CoreWeave stock spiked on the news in premarket trading, gaining as much as 8%, but then the stock pulled back shortly afterward when the company announced a debt offering, which included $1.25 billion in senior debt and $3 billion in convertible debt.
Those two news items, the debt raise and the Meta deal, didn't need to be announced on the same day, but they go hand-in-hand. CoreWeave can't sign and fulfill such contracts unless it takes on more debt. It's a double-edged sword for the stock and its investors.
CoreWeave was even in the red this morning, but turned positive along with the broad market on news that Israel had agreed to talks with Lebanon. As of 12:44 p.m. ET, CoreWeave was up 4.7%.
What the Meta deal means for CoreWeave
Despite investor skepticism about the debt raise, the Meta news is a good sign for CoreWeave. After all, that is how it grows, and securing revenue is its biggest goal right now. Eventually, it will have to sustainably fund its business and turn a profit, but given the ongoing AI infrastructure boom with hyperscalers spending around $700 billion this year on capital expenditures, it makes sense for CoreWeave to go after that opportunity.
The larger it grows now, the more leverage the AI stock should have to turn a profit when the time comes.
Jeremy Bowman has positions in CoreWeave, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.