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CoreWeave’s stock plummeted 11.4% after the company announced aggressive capital expenditure plans that significantly outpace its current revenue. Despite strong revenue growth and a substantial backlog, concerns are mounting over the company’s profitability and increasing debt load. The market appears to be reacting to the high costs of meeting AI demand rather than the demand itself.
CoreWeave (CRWV) experienced a significant drop of 11.4% on Friday, closing at $71.88. This decline erased the artificial intelligence (AI) cloud provider's gains for the entire week, pushing its shares down from a high of over $86 to below Monday's closing price of $73.06.
The sell-off comes at an intriguing time. Just two days prior, Alphabet announced an increase in its 2026 capital spending outlook by $15 billion, to a total of $205 billion. Alphabet's CFO, Anat Ashkenazi, stated on the company's second-quarter earnings call that they would "expand the use of third-party capacity in Q3 as a bridging strategy," a comment that initially boosted CoreWeave's shares in after-hours trading. However, these gains were reversed on Thursday and further eroded on Friday, mirroring a similar 15% fall for fellow AI cloud provider Nebius Group.
The market's reaction appears to be less about the demand for CoreWeave's services and more about the substantial costs associated with meeting that demand. CoreWeave's revenue surged by 112% year-over-year in the first quarter, reaching $2.08 billion, with a substantial revenue backlog of $99.4 billion at the end of March.
However, the company's profitability metrics show a more complex picture. Non-GAAP EBITDA for the quarter stood at $1.16 billion, representing a 56% margin, a decrease from 62% in the previous year. Adjusted operating income saw a year-over-year decline to $21 million from $163 million, with margins shrinking from 17% to a mere 1%. While management anticipates margin expansion throughout the year, reaching low double digits by the fourth quarter, the current figures raise concerns.
A major point of investor apprehension is CoreWeave's aggressive capital expenditure plans. The company forecasts capital expenditures between $31 billion and $35 billion for the current year, a stark contrast to its trailing 12-month revenue of approximately $6.2 billion. This means CoreWeave plans to spend about five times its past year's sales on capacity in 2026.
The imbalance between immediate spending and future revenue recognition is evident. In the first quarter, CoreWeave generated $2.98 billion in operating cash flow but invested $7.7 billion in property and equipment. The widening gap is being filled by debt, leading to a rapid increase in interest expenses. Net interest expense climbed from $264 million in Q1 2025 to a projected $650 million to $730 million in Q2 2026. Total debt has also grown significantly, reaching nearly $24.9 billion by the end of March.
Adding to the competitive landscape, Meta Platforms is reportedly developing its own cloud business to offer surplus AI computing capacity, potentially competing with CoreWeave, despite Meta being one of CoreWeave's major customers.
Despite the recent 11% dip, CoreWeave's market value remains around $39 billion, which is approximately six times its trailing-12-month revenue. Given the speculative nature of the AI infrastructure market and the company's aggressive spending strategy, this valuation may still be considered high by some investors.
