Not Crazy to Go Long CoreWeave After Meta Commits Another $21 Billion

Coreweave

CoreWeave (CRWV)  is in the news on Thursday morning. 

They sure are. A new agreement was announced between CoreWeave and Meta Platforms (META)  that has Meta committing to spending an additional $21 billion on AI cloud infrastructure provided by the former on top of a prior arrangement that had Meta spending $14.2 billion. Incredible. 

This new deal will run from 2027 through 2031. The previous smaller deal runs through 2031 as well.

Core Weave's data centers run on hundreds of thousands on Nvidia (NVDA)  designed AI-capable GPUs. This provides for hyperscalers, the space and scale required to rapidly expand capacity as the scramble to meet an insatiable and still increasing demand for all things AI continues. Meta is not the only hyperscaler serviced by CoreWeave as OpenAI, Alphabet's (GOOGL)  Google and Microsoft (MSFT)  are also clients.

There's More...

Also on Thursday morning, CoreWeave announced plans to raise $3 billion through a private offering of convertible senior notes. The initial purchasers of these notes will have a 13-day period to exercise an option to buy up to an additional $450 million in notes. The notes, which are unsecured, will mature in 2031 unless repurchased, redeemed or converted to equity. The interest rate and conversion price will be determined when the offering closes and the notes are priced.

Earnings

CoreWeave is expected to report in about a month. At the moment, consensus is for an adjusted EPS of -$1.00 or a GAAP EPS of -$1.26 on revenue of slightly less than $2 billion. 

That top-line expectation would be good for annual growth of better than 100%. The GAAP EPS number would compare well to the -$1.49 posted for the year-ago period. Interestingly, this consensus sales projection stands as 14 of the 26 sell-side analysts that I know of that cover CRWV have revised their quarterly projections lower. Twelve analysts have left their numbers unrevised.

Readers may recall that back in February, CoreWeave issued full year revenue guidance of $12 billion to $13 billion, but for capex spending of $30 billion to $35 billion. Does this deal (and others) improve that imbalance? 

The company was, at that time, also projecting an annualized run-rate of $17 billion to $19 billion in revenue by year end and over $30 billion by 2027. We'll need to see this outlook revised in May.

The Chart​

​Readers will note a long falling-wedge pattern of bullish reversal that goes back to June. There is also a smaller falling wedge in place since January. 

CoreWeave has already broken out of the smaller wedge and seems to be prepping for a run at the upper trendline of the larger wedge. This line is close enough to the stock's 200-day SMA. This red line, currently at $103 is the upside pivot.

Let's move on to the indicators. Relative strength is improving and now stands above a "neutral" reading while not approaching anything close to a technically overbought posture. The daily MACD is now in much better shape. The histogram of the nine-day EMA is in positive territory. So is the 12-day EMA, which has crossed above the 26-day EMA. These are bullish signals.

Trade Idea

I don't think it would be crazy at all to initiate a starter-sized long position in CRWV. 

A take and hold of the pivot, which is still almost 20% to the upside could unlock share prices as high as $125. That said, it might be wise to sell covered calls against any long position started. May 15 puts are currently going for a rough $3.75.

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At the time of publication, Guilfoyle had no positions in any securities mentioned.