CoreWeave (NASDAQ:CRWV) released its third quarter earnings last week, delivering impressive results that topped analyst expectations on both revenue and earnings. Yet it wasn’t what happened in the past that shook investors; rather it was what it said was happening in the future.
This was not a beat-and-raise quarter, and in fact, management offered up an outlook lower than what it previously forecast. Artificial intelligence (AI) stocks drive higher on seemingly unending growth, and a company that says not only is that growth slowing, but going into reverse, will pay a heavy price.
CoreWeave’s stock has lost 26% of its value since the earnings report, but shares were already falling before that, closing lower in 10 of the last 11 days. The stock is falling another 7% in premarket trading this morning. Yet with shares now down about 60% from their 52-week high, is CoreWeave stock simply too cheap to ignore?
A Robust Performance
The AI cloud provider reported revenue of $1.365 billion, beating estimates of $1.3 billion and marking a 134% year-over-year increase. Its net loss narrowed to $110 million, or $0.22 per share, better than the anticipated $0.51 loss per share. Adjusted EBITDA came in at $838 million, exceeding the $808 million forecast, while the revenue backlog doubled quarter-over-quarter to $55.6 billion.
Key highlights included being the first to deploy Nvidia‘s (NASDAQ:NVDA | NVDA Price Prediction) GB300 NVL72 systems and securing a $14 billion multi-year deal with Meta Platforms (NASDAQ:META), plus expanding its OpenAI partnership to $22 billion in commitments.
However, the positive beats were overshadowed by lowered full-year 2025 guidance. CoreWeave now expects revenue between $5.05 billion and $5.15 billion, down from a prior outlook that reached up to $5.35 billion. This revision stems from delays in construction at an unnamed major data center partner. Although the contract was extended to preserve the total deal value, the postponement will shift revenue recognition and negatively affect Q4 results. The announcement accelerated a decline that was already well underway.
AI’s First Major Reality Check
This development marks the first significant jolt to the AI sector’s unchecked optimism. For months, stocks like CoreWeave have soared on the promise of explosive growth in AI infrastructure, fueled by surging demand for computing power. But CoreWeave’s announcement serves as a stark reminder that real-world hurdles can disrupt even the hottest trends.
The delays highlight vulnerabilities in the supply chain for AI data centers, where rapid scaling meets logistical bottlenecks. For CoreWeave, this means deferred capacity deployment, even as its active power reached 590 megawatts and contracted power hit 2.9 gigawatts. While the company emphasized that the issue is isolated and temporary, it underscores broader risks facing AI enablers.
Other firms riding AI tailwinds could face similar pressures. Valuations across the sector remain elevated, with many trading at multiples that assume flawless execution. CoreWeave’s experience suggests that growth projections may need tempering, especially as energy consumption becomes a flashpoint.
Data centers already account for a growing share of global electricity use, and constraints on power grids could lead to more delays industry-wide.
Valuation Still Stretched Amid Margin Pressures
Even after the sharp correction, CoreWeave trades at about 9x forward sales based on its revised guidance — a premium for a company still posting losses. The net loss, while improved, reflects heavy investments in expansion. More concerning is the erosion in profitability metrics: adjusted operating margin fell to 16% in Q3 from 21% a year ago. This decline stems from rising infrastructure costs and intense competition for scarce resources such as GPUs and skilled talent.
The company is grappling with escalating capital expenditures to build out 32 data centers, a process prone to setbacks akin to large-scale construction projects. Management noted progress in lowering financing costs, but interest expenses tripled to $311 million in Q3, up from $104 million last year. While backlog growth signals robust demand, converting that to revenue depends on timely infrastructure rollout. If delays persist or spread to partners, it could further compress margins and delay breakeven.
Broader sector concerns add to the caution. Questions about AI’s long-term scalability are mounting, particularly around sustainable energy use. As more companies report earnings, there is a “contagion risk” and similar disclosures on resource bottlenecks could trigger a reevaluation of AI stocks. For now, CoreWeave’s setback appears contained, but it exposes the fragility of hyper-growth narratives.
Key Takeaway
This isn’t the end for CoreWeave — the company’s strong backlog and key partnerships position it well in the AI cloud space. However, at current levels, the stock remains pricey relative to its risks and ongoing losses. Sector-wide issues, from energy constraints to supply chain snarls, are likely to surface more frequently. If peers start reporting comparable delays, CoreWeave could face a further downward rerating.
There’s still plenty of downside potential for CoreWeave, so the prudent move is to wait for the dust to settle, monitor for additional hiccups across the industry, and reassess entry points once stability returns.
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