CoreWeave stock price has plunged in the past few days, even as NVIDIA soared to a record high and hit a $4 trillion market capitalization. CRWV stock has plunged to a low of $153, down from the all-time high of nearly $190. It remains 354% above its all-time low.
This article explains why the CoreWeave share price may crash soon, before rebounding, potentially ahead of earnings.
Why CoreWeave stock price has crashed
CoreWeave is one of the fastest-growing companies in the United States. It is slowly becoming the biggest player in the artificial intelligence (AI) industry, where it offers data center solutions.
The company builds large data centers and then offers its services to companies working on large AI projects. Some of its top clients are companies like Microsoft and OpenAI.
CoreWeave has a relatively simple business model. It simply buys a lot of NVIDIA GPUs and other products and then sells their solutions to these AI modellers. Just recently, it became the first company to offer the most advanced NVIDIA GPUs.
The challenge, however, is that its business is highly capital-intensive since it has to lease spaces and buy these GPUs. As a result, it expects to spend between $20 billion and $23 billion in capital expenditure this year.
One of its approaches to grow its business is through acquisitions. It recently announced that it would acquire Core Scientific, a company in the data center and Bitcoin mining operations in a deal valuing the latter at $9 billion.
CoreWeave hopes that the deal will help it to scale its operations and also reduce costs over time. This buyout is one of the top reasons why the CRWV stock has crashed.
Read more: CoreWeave stock is firing on all cylinders: get out before the engine overheats
Valuation concerns remain
One of the biggest concerns about CoreWeave stock is that analysts believe that its business is highly overvalued since its market capitalization has jumped to over $72 billion. They are also concerned about its profitability and valuation.
Proponents justify the valuation in that it is one of the fastest-growing companies in Wall Street. Its first-quarter revenue rose by 420% to over $982 million.
Analysts and the company anticipate that its growth will accelerate as the As demand continues. For example, the management guided its revenue to come in at between $1.06 billion and $1.1 billion, much higher than the $395 million it achieved in the last quarter.
The annual revenue guidance is that its revenue will be between $4.95 billion and $5 billion, higher than last year’s $1.95 billion. Therefore, to some extent, it is easy to justify this valuation based on its revenue growth and the fact that it has a big market share in the industry.
Additionally, the company has room to become highly profitable by slowing its capital expenditure. In this, it will continue generating revenue while having low expenses. For now, it has to spend all this money to grow its market share and scale.
Keep in mind that some companies have maintained their overvaluation status for years as long as they are able to demonstrate strong growth. A good example of this is NVIDIA.
CoreWeave share price analysis
The two-hour chart shows that the CRWV stock price has pulled back in the past few days, moving from a high of $185 to the current $153. It has formed a head-and-shoulders pattern, a popular bearish reversal sign.
The stock has moved to the 23.6% retracement level and the 50-period moving average. Therefore, the most likely scenario is where it will drop to the 50% retracement level and then resume its uptrend, potentially after its earnings in August.
The post CoreWeave stock price analysis: to get worse before it gets better appeared first on Invezz