CoreWeave earnings rally lifts AI cloud stocks and Nvidia
CoreWeave shares jumped 10 per cent on Wednesday after strong earnings eased AI bubble fears. The rally lifted Nvidia and other cloud stocks, despite industry concerns over data centre regulation and SoftBank's US$3.7 billion writedown.
CoreWeave jumped 10 per cent on Wednesday, igniting a rally in battered AI cloud stocks, as its hefty spending yielded strong revenue growth and the company signalled a pullback from the borrowing binge that had set off alarms of an AI bubble. The earnings also lifted shares of key CoreWeave backer Nvidia by 5 per cent, after a bruising two-day slide driven by worries about CEO Jensen Huang's future at the company following his affair with a Chinese businesswoman alleged to be a spy for Beijing.
Shares of so-called "neoclouds" including Nebius and Iren rallied after facing weeks of turmoil on fears that their debt-fuelled data centre expansion could backfire if AI demand slows. The Democratic midterm sweep last week dealt another blow to the industry, with several winning candidates campaigning for tighter regulation and moratoriums on new data centre construction, including in the crucial market of Texas.
CoreWeave CEO Michael Intrator told Reuters on Tuesday that greater scrutiny could slow data centre construction across the industry, but he did not expect it to significantly alter the company's expansion plans or drive up costs. The company also raised its annual revenue forecast and said it would not tap unsecured debt markets after a recent spike in borrowing costs and that cash flow from existing contracts would cover both current and future debt repayments.
"CoreWeave delivered about the best quarter we could have asked for. Stats were good-to-great, funding concerns were addressed and the strategic moves make sense," Bernstein analysts led by Madison Rezaei said in a client note. But they warned that CoreWeave "will be among the first and hardest hit" when the crunch in AI computing capacity eases.
The risks of mistiming AI investments became evident on Tuesday as SoftBank took a US$3.7 billion writedown on non-refundable payments for equipment to power its US data centres. That pushed the Japanese tech investor to a second-quarter net loss of US$7 billion, its first in nearly two years.
For now, CoreWeave's results gave investors in AI infrastructure stocks reason to cheer, with Nebius, Iren, Oracle and Applied Digital climbing between 4.7 per cent and 11.8 per cent in premarket trading. All the stocks but Nebius have lost 32 per cent to 48 per cent this year as of Tuesday, while Nebius has surged 60 per cent. Together, the cloud companies, including CoreWeave, were set to gain more than US$25 billion in market value on the day, while Nvidia alone stood to add about US$210 billion, if gains hold. Nebius is due to report results before Thursday's opening bell.