56 Billion Reasons to Buy CoreWeave's Stock (and 1 Reason to Avoid It)

CRWV -1.57% MSFT +1.34% META +2.26%

Key Points

• CoreWeave has a massive revenue backlog it must churn through.

• CoreWeave doesn't generate positive cash flows right now.

• 10 stocks we like better than CoreWeave ›

CoreWeave (NASDAQ: CRWV) is a critical company in the artificial intelligence (AI) infrastructure build-out. It has essentially become a cloud computing platform that is solely focused on providing its clients access to the best AI computing hardware available. This focus has led to incredible growth, and it's only getting started.

CoreWeave's growth is a compelling reason to buy the stock, but there is one glaring red flag that investors can't afford to miss. Are the 56 billion reasons to buy its stock greater than the one to avoid it? Let's take a look.

CoreWeave is rapidly building out its capabilities

CoreWeave has several big-name clients utilizing its services. Among them are Microsoft and Meta Platforms, which are using CoreWeave's platform to supplement their own data center footprint. It signed contracts with many of the AI hyperscalers to provide computing power over a multiyear time frame, and this is where its monster growth projections originate.

Over the past 12 months, CoreWeave's revenue totaled $4.3 billion, up 133% year over year. However, it has $56 billion of revenue backlog on its books. That figure comes from the remaining performance obligations it has signed with its clients, and it spans multiple years. This isn't guaranteed revenue, as clients could still back away. But it gives investors an idea of what they can expect.

About 40% of that total, or $22 billion, is expected to be recognized over the next 24 months. That essentially projects CoreWeave to nearly double its revenue over the next two years -- a great sign for investors. Thirty-nine percent of that total comes due in 25 to 48 months, with 21% coming in 49 months or later. I'm not worried about what occurs after two years, as the artificial intelligence build-out will look a lot different a few months from now, let alone two years from now. I'm confident that CoreWeave can continue to grow the 25- to 48-month backlog figure over the next few quarters, but it is a metric that investors need to keep an eye on.

One concern with CoreWeave is that its AI hyperscaler customers are only using CoreWeave to bridge the gap until they have built out their own data centers. This could leave CoreWeave in a precarious situation, and makes the reason I'd avoid the stock even more concerning.

CoreWeave is a long way away from profitability

The primary concern the market has with CoreWeave is its lack of profitability. The lifespan of the graphics processing units (GPUs) in data centers is short, and they can burn out after just a few years of use. As a result, it needs to generate positive cash flows now. Otherwise, it's just burning investors' money, funding the AI hyperscalers' build-out at a loss. This could also be why it's rapidly growing its client base, as it could be cheaper to rent from CoreWeave than to build out internal computing capacity.

In Q3, CoreWeave's free cash flow was an outflow of $8 billion.

This indicates that losses are widening, and is a reason to stay away from the stock.

So, what is more important for investors -- CoreWeave's incredible growth or its profitability? For most stocks, I'm OK with their companies staying unprofitable to capture market share and then generate a profit sometime later. I'm not willing to give CoreWeave that leeway. The AI build-out trend will only last for so long, and with the lifespan of GPUs typically only a few years of operation, I think this is a risky business to invest in.

On the flip side, if CoreWeave can become profitable and sustain its growth, I will be buying shares immediately. CoreWeave could be a great business if it becomes profitable, but until it reaches that point, I think it's one investors should avoid.

Should you buy stock in CoreWeave right now?

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Keithen Drury has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

56 Billion Reasons to Buy CoreWeave's Stock (and 1 Reason to Avoid It) was originally published by The Motley Fool