After Its New $6.3 Billion Deal With Nvidia, Is It Finally Time to Buy CoreWeave Stock?

The advent of artificial intelligence (AI) has changed the face of technology, and that shift is ongoing. Nvidia (NVDA -2.62%) became the market's first AI darling, as its graphics processing units (GPUs) quickly became the gold standard for running AI models and speeding data through the ether. It has soared more than 1,100% since early 2023 (as of this writing), and the stock remains within striking distance of a new all-time high. During that same period, Nvidia's revenue jumped 673%, driving net income up 1,770%.

Those blistering results have attracted the attention of the tech world, with many companies scrambling to get a share of the AI windfall. However, the unrelenting demand for AI-capable chips and limited production capacity led to a shortage of top-shelf GPUs that continues to this day. This presented an intriguing opportunity for the rise of CoreWeave (CRWV 1.67%), which provides cloud-based AI resources for customers.

The neocloud provider just deepened its already strong relationship with Nvidia. That, combined with the recent correction in its share price, has some investors wondering whether it's finally time to buy CoreWeave stock.

Let's see what the evidence suggests.

Neocloud in a nutshell

Cloud computing entered the mainstream more than 20 years ago, giving users online access to software applications, data storage, and data processing. As I've previously written, "The flexibility, improved security, and ability to scale offered by the cloud make it an attractive choice for many businesses. Furthermore, most AI processing takes place in the cloud, which has spurred even greater adoption."

The advent of AI fueled the rise of the neocloud. These specialized providers are largely focused on GPU-as-a-service (GPUaaS) and AI-as-a-Service (AIaaS), and CoreWeave is widely regarded as the largest and most dominant of the neocloud set.

One of CoreWeave's biggest advantages is the company's close ties to Nvidia. The strategic partnership gives CoreWeave early access to Nvidia's latest and greatest offerings, allowing it to capitalize on the ongoing demand for AI processing.

The relationship goes further, however, as Nvidia owns a roughly 5% stake in CoreWeave, amounting to nearly 24.3 million shares worth more than $2.86 billion (as of this writing). It also ranks as Nvidia's largest equity holding, representing 91% of the company's portfolio at the end of the second quarter.

The pair has recently taken their relationship to the next level. In a regulatory filing that dropped September 9, CoreWeave announced an agreement initially worth $6.3 billion, saying that it would provide Nvidia with "access to any residual unsold cloud computing capacity," with Nvidia on the hook to purchase unused capacity until 2032.

In a statement about the deal, Nvidia pointed to the "long lead times and four to six year customer commitments" as the logic behind the deal. "To support start-ups and small to mid-sized companies, Nvidia and CoreWeave are proactively building data center infrastructure and provisioning data center capacity to meet evolving capital needs," a Nvidia spokesperson said.

Put another way, this deal gives CoreWeave investors the assurances of a guaranteed revenue stream for the next seven years.

Paint by numbers

CoreWeave's results paint a compelling picture. In the second quarter, revenue of $1.21 billion surged 207% year over year, resulting in a loss per share of $0.60, which improved 63%. For context, Wall Street was expecting revenue of $1.08 billion, so CoreWeave surpassed expectations with room to spare.

Equally as important was the company's remaining performance obligation (RPO) -- or contractually obligated sales not yet included in revenue -- which soared 86% year over year to $30.1 billion, illustrating the strong demand that remains. In fact, CFO Nitin Agrawal confirmed on the earnings call that demand continues to outstrip supply.

CoreWeave also expanded its existing relationship with OpenAI, striking a new $4 billion deal, beyond the previously announced $11.9 billion contract.

The company continues to ramp its investments in data center and server infrastructure to meet the "unprecedented" demand.

Time to buy?

CoreWeave had been on fire since its late-March initial public offering (IPO), with the stock soaring as much as 359% before gravity finally brought it back to earth. Concerns about the ongoing demand for AI, CoreWeave's high valuation, and the company's ongoing losses sent the stock lower, which now sits 35% below its peak, while still sporting gains of 197%.

On the bright side, CoreWeave's valuation is much more reasonable than it was just three months ago, selling for 13 times sales. While some might view this as a premium, I would argue it's an attractive valuation for a high-growth company with a well-heeled benefactor and a long runway for growth ahead.