CoreWeave: The New AI Contender Outshining Nvidia and Palantir in 2024

Over the past few years, Nvidia (NVDA) and Palantir Technologies (PLTR) have established themselves as leaders in artificial intelligence (AI), delivering impressive earnings and stock performance. In 2023, Nvidia stood out as the Dow Jones Industrial Average's top performer, while Palantir led the S&P 500. As the AI sector continues to expand, both companies are poised for more growth. However, a new player has emerged in the first half of 2024 that has taken the market by storm: CoreWeave.

CoreWeave's Meteoric Rise

CoreWeave (CRWV) is a fresh face in the public markets, having launched its initial public offering (IPO) at the end of March 2024. Despite being new, CoreWeave's stock climbed an astonishing 300% in just three months, outperforming both Nvidia and Palantir during this period. This explosive growth has sparked investor interest, prompting questions about whether its stock still presents a buy opportunity.

Strong Connections to Nvidia

CoreWeave’s success is closely connected to Nvidia. The company provides cloud infrastructure services by renting access to a vast fleet of Nvidia graphics processing units (GPUs)—currently over 250,000 deployed for AI-heavy workloads. This allows its customers to tap into powerful AI capabilities without massive upfront hardware investments.

Nvidia holds a 7% stake in CoreWeave and has given CoreWeave early access to its latest GPU architectures. Notably, CoreWeave became the first cloud service provider to offer Nvidia's new Blackwell chips, including the advanced Blackwell Ultra.

Riding the AI Inferencing Wave

Much of CoreWeave’s growth is tied to the surging demand for AI inferencing—the process by which AI models answer complex queries, requiring the massive parallel processing only top-tier GPUs can provide. As more organizations adopt AI solutions, the need for ongoing inferencing will likely fuel further demand for CoreWeave’s services even beyond the initial AI model training phase.

According to its first-quarter report, CoreWeave’s revenue soared more than 400% year over year, reflecting strong market demand. With Nvidia itself reporting increased inferencing demand, CoreWeave seems well-positioned for continued expansion.

Challenges Ahead: Heavy Investment and Profitability Concerns

Despite its impressive growth, CoreWeave faces significant challenges. Maintaining its lead means ongoing, substantial capital investment into new GPUs and infrastructure. With Nvidia frequently updating its chip lineup, CoreWeave must continually spend to ensure it remains ahead of the curve.

In Q1 2024, CoreWeave’s technology and infrastructure costs leapt by over 500%, reaching around $500 million. The company remains in an early, high-growth phase, and it’s tough to predict when it will achieve profitability. Yet, some upfront expenses may yield long-term savings as the business scales.

Strategic Acquisition: Core Scientific

A recent strategic decision was CoreWeave’s announcement to acquire Core Scientific, a major data center provider. This move, valued at $9 billion in an all-stock transaction, is expected to save CoreWeave $10 billion in future lease payments. However, news of the deal led to a drop in CoreWeave's share price due to concerns about share dilution and the inherent risks of integrating new operations.

Is CoreWeave Stock a Buy Right Now?

After eclipsing even the top names in AI so far in 2024, investors may wonder if CoreWeave is still a smart buy. For cautious or value-driven investors, the risks associated with heavy infrastructure spending and a lack of immediate profitability may outweigh the potential rewards. However, long-term growth investors who are comfortable with volatility may find CoreWeave an appealing addition, especially as demand for AI and access to Nvidia’s latest chips could support significant gains over time.

This content is for informational purposes only and does not constitute financial advice.