Why CoreWeave Stock Is Jumping

The Motley Fool · 1d ago

Key Points

  • CoreWeave shares are rebounding with the broader tech sector after Microsoft and Meta earnings confirmed that AI compute demand remains red-hot.

  • Microsoft's Azure cloud platform grew 43% year over year, and the company signed over $130 billion in new data center leases -- a two-thirds jump from last quarter.

  • Despite the bullish industry tailwinds, CoreWeave's stock still appears overvalued even after significant declines this year.

CoreWeave (NASDAQ: CRWV) stock was up 23.5% as of 3:15 p.m. ET Thursday. The S&P 500 and the Nasdaq Composite were up 1.8% and 3%, respectively.

CoreWeave, the fast-growing neocloud, is seeing shares rise alongside the entire market. After a brutal sell-off at the end of trading yesterday, the tech market is recovering behind a strong earnings report from the tech behemoth Microsoft. Its report, alongside Meta's, showed demand for AI compute is still while-hot.

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Microsoft and Meta show AI compute demand is still white-hot

Microsoft said its cloud platform Azure grew by a whopping 43% year over year behind continued AI demand. The company is scaling rapidly and relying heavily on leasing, signing more than $130 billion in new data center leases during the quarter. That's a jump of over two-thirds from the previous quarter.

CEO Satya Nadella said the company is on pace to roughly double its data center capacity within two years.

An AI data center

Image source: Getty Images

Although Meta's quarter largely disappointed investors, comments on the earnings call made it clear that the company also sees massive continued demand in AI compute.

Why I'm avoiding CoreWeave despite the good news

The news that Microsoft and Meta still see so much demand and are leasing from third parties in part to meet it is great news for neoclouds like CoreWeave, which has deals with both tech giants.

Still, CoreWeave stock, even after falling heavily this year, is overvalued in my view. I would avoid the stock.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Microsoft. The Motley Fool has a disclosure policy.