What's Wrong With CoreWeave Stock?

A good way to gauge the excitement around artificial intelligence (AI) stocks is to simply look at CoreWeave (NASDAQ:CRWV) stock. The company makes money by renting out compute space and giving its customers access to Nvidia's cutting-edge AI chips. When the market is euphoric about AI, CoreWeave's generally doing fairly well. When it isn't, however, that's when the stock goes on a tailspin.

The risks and opportunities aren't complex with CoreWeave. The business has tremendous opportunities due to AI, but a high debt load and lack of profitability also lead many investors to think twice about how safe the stock really is. And it's the latter that appears to be weighing on its valuation right now, as rising bond yields and concerns about interest rates have resulted in the AI stock nosediving of late.

Rising interest rates could further cripple CoreWeave's stock

Last week, CoreWeave's stock fell below $60, as it hit a new 52-week low of $59.51. Many AI stocks have been struggling this month, but CoreWeave has been among the worst. Heading into trading this week, it was down 26% over the past month. Concerns that the war in Iran isn't ending anytime soon and that inflation may remain elevated, potentially leading to an increase in interest rates, appear to be weighing on the stock.

These developments are concerning for CoreWeave, as its debt load is high and the business is unprofitable, and thus it may need to continue raising more money to fund its growth. When it last reported earnings in August, its net loss totaled $626 million, and a big reason was its massive interest costs, which totaled $640 million. Higher interest rates may spook investors further, raising doubts about whether the tech company has a path to profitability.

Why I wouldn't bother with CoreWeave

CoreWeave has a close relationship with Nvidia, which has certainly helped the business, but its financials aren't strong, and it doesn't have a robust competitive advantage that makes it likely to recover from any market downturn. There's ample risk with the stock, especially if demand for AI investment slows, which could happen if the cost of capital rises due to higher interest rates.

The stock may seem appealing due to its reduced valuation, but it remains a fairly risky investment to own, since so much depends not only on the outlook for AI but also on interest rates. CoreWeave isn't a stock I'd consider buying right now, especially when there are many cheaper tech stocks to choose from instead.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.