NVIDIA, a leading designer of artificial intelligence chips, has displayed a notable investment strategy by substantially raising its holding in CoreWeave. This AI-focused cloud computing firm, which utilizes NVIDIA's cutting-edge graphics processing units (GPUs), recently reported a remarkable tripling of its revenue. This strategic move highlights NVIDIA's confidence in CoreWeave's potential and underscores the deepening collaboration between the two companies. For investors, understanding this relationship and CoreWeave's operational dynamics is key to evaluating its future trajectory.
NVIDIA, renowned for its advancements in AI products and services, has a history of robust earnings growth. Beyond its core business, the company has also positioned itself as a shrewd investor, holding over $4 billion in shares across six technology companies. In the latest reporting period, NVIDIA significantly augmented its position in CoreWeave, making it the dominant holding in its investment portfolio. This increased stake, rising from 78% to over 91% of NVIDIA's portfolio, signals a strong conviction in CoreWeave's long-term prospects. CoreWeave, which launched its initial public offering in March, provides high-powered computing resources to clients developing and deploying AI platforms. NVIDIA’s initial investment in CoreWeave began in the first quarter, with the most recent increase adding approximately 0.4% to its position, bringing its total to 24,277,573 shares valued at more than $3.9 billion.
The synergy between NVIDIA and CoreWeave is evident in their operational relationship. NVIDIA manufactures the industry's top-performing GPUs, while CoreWeave makes these powerful units accessible to customers. CoreWeave’s infrastructure boasts a vast array of over 250,000 NVIDIA GPUs, which customers can rent on an hourly or long-term basis across its approximately 32 data centers. Notably, CoreWeave was the first to offer general access to NVIDIA's Blackwell architecture and chip earlier this year, and more recently, the Blackwell Ultra update. This partnership ensures that CoreWeave's clients have immediate access to NVIDIA's latest technological innovations, providing a competitive edge in the rapidly evolving AI landscape.
CoreWeave's financial performance reflects this strong demand. Its revenue more than tripled in the second quarter, reaching $1.2 billion. The company has also raised its full-year revenue forecast by $250 million, projecting a range of $5.15 billion to $5.35 billion. This rapid growth, however, necessitates significant capital investment, with an anticipated $2.9 billion in spending for the third quarter alone. While CoreWeave is not yet profitable, this is a common characteristic for high-growth companies in their early stages. Furthermore, CoreWeave’s planned acquisition of Core Scientific, structured as an all-stock transaction, is a strategic move to gain ownership of critical infrastructure without incurring additional debt. This acquisition is expected to reduce lease liabilities by over $10 billion, potentially leading to lower long-term costs and enhanced earnings growth.
For investors, the question remains whether to mirror NVIDIA’s bullish stance on CoreWeave. It is crucial to acknowledge the inherent risks associated with an unprofitable, high-growth company. CoreWeave faces stiff competition from established cloud service providers like Amazon Web Services and Google Cloud. Although CoreWeave differentiates itself with services specifically tailored for AI, these competitive pressures could impact its growth trajectory and stock price. Therefore, cautious investors might find CoreWeave too volatile for their risk appetite. However, for aggressive investors seeking high-potential AI stocks at a favorable valuation, CoreWeave presents an intriguing opportunity. Despite soaring by triple digits since its IPO, the stock has recently experienced a roughly 50% dip from its peak, offering a more accessible entry point. The endorsement from an industry leader like NVIDIA, coupled with CoreWeave's strong operational performance and strategic moves, provides compelling reasons for optimism regarding its long-term potential.
