CoreWeave (NASDAQ: CRWV) stock price remains under pressure this month, despite its rising role in the artificial intelligence (AI) industry, where it has become the partner of choice of top companies. CRWV dropped to $105 on Tuesday, down from this month’s high of $138.
With its short interest at 14% and its stock down by 45% from its peak last year, here are the top reasons why investors are shorting the stock.
CoreWeave stock pressured by rising depreciation
On paper, CoreWeave’s business is firing on all cylinders. It has inked the biggest deals in the neocloud industry, with its revenue backlog jumping to nearly $100 billion. It has entered long-term agreements with most of the biggest companies in the industry like Microsoft, Anthropic, OpenAI, and Meta Platforms.
The most recent results showed that its revenue is surging. Its revenue jumped to over $2.078 billion in the first quarter from $982 million in the same period last year. Most importantly, analysts believe that the company has more upside to go, with its annual revenue will jump to $12.6 billion this year, followed by $25 billion next year.
Still, beneath the surface, investors are concerned about its growing depreciation. Its recent results showed that its depreciation and armotization costs rose to over $1.14 billion from $443 million. This is important as D&A costs accounted for 57% of its revenue, and will continue growing in the near term.
Dilution and soaring debt
CoreWeave stock is also being shorted because of its soaring capital expenditures, which have led to a surge in its debt and dilution. Its recent results showed that the company plans to spend between $30 billion and $35 billion in capital expenditure this year. The figure may come near or above the upper range because of the rising prices of chips and memory.
The management has numerous sources of cash. It recently received a $2 billion investment from NVIDIA, which now owns about 11% of the company. It also uses client prepayments to fund the growth.
Most importantly, the company raises funds by selling its shares, a move that dilutes existing shareholders. Its outstanding shares have jumped to 448 million from 317 million last year.
The dilution will continue in the foreseeable future because it also raises a lot of convertible debt. Its numbers showed that its non-current debt jumped to over $17 billion, while its current debt stands at $7.5 billion. These are huge numbers for a company that had less than $2 billion in total debt in 2022.
Valuation and rising competition
CoreWeave’s short interest has also jumped because of the rising competition in the industry. Most of this competition is coming from Nebius (NASDAQ: NBIS), a neocloud that has received orders worth billions of dollars. It recently received a $27 billion order from Meta Platforms.
More companies like IREN, TeraWulf, Mara Holdings, Riot Platforms, and Hive Digital have all entered the industry. As such, there are worries that future deals will be more competitive. However, CoreWeave still has the first-mover advantage, meaning that its business will have a competitive advantage.
There are also concerns that it has become highly overvalued, with its market cap of $57 billion, being about 57% of its total revenue backlog.
CRWV stock has formed a head-and-shoulders pattern
CoreWeave stock price chart | Source: TradingView
Meanwhile, technicals suggest that the stock may retreat further. It has formed what looks like a head-and-shoulders pattern, which is a common bearish reversal sign. It also dropped below the key support level at $114.30, its highest point on January 29, which was the neckline of the double-bottom pattern.
Therefore, there is a risk that the stock will resume the downward trend, and possibly move to $88, its highest point on March 16 this year.
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