CoreWeave: AI Stock or Meme?
Source: finance.yahoo.com
CoreWeave is a rising name in the artificial intelligence (AI) chip stock market. The company's infrastructure services business is doing well, with no signs of slowing down. While CoreWeave's future seems promising, its stock might be overbought, according to valuation analysis.
When it comes to AI chip stocks, companies like Nvidia, Broadcom, Advanced Micro Devices, and Taiwan Semiconductor Manufacturing are often discussed. These companies design and manufacture advanced chipsets known as graphics processing units (GPUs). While semiconductor stocks have generally been a good investment, the aforementioned stocks have slowed down during 2025. Investors are reducing their gains and seeking opportunities elsewhere due to uncertainty around tariff negotiations and exposure to China.
CoreWeave's Rise
CoreWeave (NASDAQ: CRWV), which went public in March, has become a new favorite among chip stocks. As of June 6, shares of CoreWeave have increased by 251% since its IPO. The question is whether now is the right time to invest in CoreWeave or if it's becoming Wall Street's next meme stock.
Chip design and manufacturing stocks have been popular among investors for the past few years. Companies like Nvidia, AMD, Broadcom, and Taiwan Semi are expected to have bright futures. McKinsey & Company reported that nearly $7 trillion could be allocated to AI infrastructure over the next five years, with the largest portion going towards hardware for AI data centers. These trends are supported by infrastructure initiatives like Project Stargate in the U.S. and similar projects overseas, especially in the Middle East.
CoreWeave's Business Model
CoreWeave's unique business model is gaining favor among chip stock investors. The company offers an infrastructure services business where customers can access clusters of Nvidia GPUs and other architectures via the cloud. This allows generative AI developers to efficiently access top-tier hardware without directly ordering it, waiting for manufacturing, or building custom training and inferencing clusters.
At the end of the first quarter (March 31), CoreWeave reported $14.7 billion in remaining performance obligations and $11.2 billion in committed contracts from a deal with OpenAI. With a backlog of approximately $25.9 billion, analysts expect CoreWeave to triple its revenue over the next two years and become profitable. However, CoreWeave's valuation suggests that this positive news is already factored into the stock price.
CoreWeave's price-to-sales ratio is higher than more established data center infrastructure businesses like Oracle and Vertiv, and its multiple continues to increase. While investing in infrastructure services businesses within the AI sector is appealing, CoreWeave's valuation expansion leaves little room for error. Buying a stock at record levels requires strong confidence that the price will keep rising. Although CoreWeave may perform well in the long run, investing at its current price may not be wise.
Investing in momentum stocks can be risky, and CoreWeave's price may normalize soon. If CoreWeave shares show weakness, it could be an opportunity for investors to buy the dip. While CoreWeave could be a long-term winner, there may be better times to buy the stock. Currently, CoreWeave exhibits some characteristics of a meme stock, and it may be best to avoid its shares.
Alternative Investments
The Motley Fool Stock Advisor analyst team has identified 10 stocks for investors to consider, and CoreWeave is not one of them. These 10 stocks have the potential for significant returns. For example, Netflix was on this list on December 17, 2004, and Nvidia was on the list on April 15, 2005. Stock Advisor's average return is 792%, outperforming the S&P 500's 173%. Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing and recommends Broadcom.