Key Points
CoreWeave was added to the Nasdaq 100 this week.
The company has burned $100 billion in cash over the last twelve months.
Buying the stock today looks highly risky.
- 10 stocks we like better than CoreWeave ›
Shares of CoreWeave (NASDAQ: CRWV) fell 12.4% this week, according to data from S&P Global Market Intelligence. The artificial intelligence (AI) infrastructure company was added to the Nasdaq 100 Index on Monday, prompting investors to sell afterward. Some investors also remain skeptical about its heavy debt load.
As of the market close on Thursday, June 25th, CoreWeave stock is down 12.4% this week. Here's why the stock is falling, and whether now is a good time to scoop up some shares.
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Index addition and debt worries
Just a few days ago, CoreWeave was officially added to the Nasdaq-100 Index, which includes 100 of the largest non-financial businesses listed on the Nasdaq. Ahead of index inclusion, traders can get excited about index fund buyers propping up a stock, leading to a short-term pop after the announcement. When the inclusion is made official, it can break this momentum, as happened to CoreWeave over the last couple of trading days.
From a business perspective, CoreWeave is aggresively trying to win cloud computing market share for AI, using debt funding to build data centers for AI customers. Its revenue grew 100% to $2 billion last quarter, but over the last twelve months, it has burned $10 billion in free cash flow. Investors are concerned about how CoreWeave can keep funding this cash burn as it chases scale.
Image source: Getty Images.
Time to buy the dip?
CoreWeave is unprofitable, so it is difficult to value the business. But it has a market cap of $54 billion, has been in business for only a few years, and is burning $10 billion in cash each year. For my money, this makes CoreWeave a risky stock to own today, meaning investors should avoid buying the dip this week.
Should you buy stock in CoreWeave right now?
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
