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AI cloud computing company CoreWeave out with earnings results, topping estimates in its debut quarter, but causing investors a little concern in its capex plans to spend 20 billion to 23 billion dollars this year on AI infrastructure capacity. Joining us now with a reaction, Nick Del Deo. He is a managing director from MoffettNathanson. Nick, great to have you here. Interesting in terms of the market action because when they initially reported revenue that beat estimates, we saw a pop in the stock, but then this capex number a little bit disappointing for investors. Where do you net out on this name today?

Yeah, well, thanks for having me, Madison. Yeah, I think that's, I think that's the right interpretation. Is initially when folks saw the earnings report, um, there was the revenue beat which was very encouraging. When the company provided their 2025 guidance, uh, their operating income expectations and uh, were a bit lower than expected, capex a bit higher. Um, but quite a bit higher actually. I, I think that the team explained that as wanting to accelerate their investments into the business to pull forward some of the revenue growth they expect. Uh, which I think is, is, is sensible in that this is an infrastructure business where you have to have infrastructure deployed to rent it out and generate revenue to the extent you can speed that up. Makes sense. But obviously you need to spend money uh, to deploy that infrastructure before you can monetize it. I think, I think it's supportive of the longer term growth outlook for CoreWeave, um, you know, which combined with their, uh, uh, with their revenue backlog is, is you know, suggests healthy revenue growth ahead.

So you'd be bullish, it sounds like, going forward. I am curious though about the reaction to the debt and what that signals to you about the market and whether or not there's kind of a shift to a little bit more pessimism around AI capex where initially maybe last year they got a little bit more of a pass for some of that.

Yeah, well, certainly CoreWeave's model, uh, to a large degree is predicated on being able to finance its acquisitions of property and equipment with debt, debt and customer prepayments associated with their contracts. That's enabled the company to really scale their business without necessarily having to front a lot of their own capital or, or put in a lot of their own equity. Um, it, it's a bit of a unique financing model where they can effectively factor the contracted revenues, uh, that they have from their, from their customers. I think it, that, that model worked really well with, um, say Microsoft, which is the bulk of the company's revenue today, given it's a triple A credit and you're willing to find lenders to, uh, uh, to lend against that revenue stream. I think it, I think it's more interesting going forward as the company diversifies its revenue base and perhaps picks up more companies like OpenAI, which assigned a lot of uh, deals with open uh, uh, with CoreWeave recently or their AI labs where the credit profile isn't necessarily as strong. Uh, I think it remains to be seen sort of the terms under which CoreWeave can borrow uh, against that contracted revenue to, to fund their growth.

And my guest host, Tim has a question for you, Nick.

Nick, when, when you look at this report or you know, some of the comments from uh, Amazon, Meta, Alphabet, uh, this earnings season, it, is very clear that the demand is, is not slowing down, which I think is, is very encouraging. You know, the question I have is, is, is really, where does this end? Like what, what does this total AI infrastructure market look like? And when you look at a company like CoreWeave, what's their role in that? What type of market share do you see them ending up with and, and, and margins as well?

Yeah, good question. I, I think the market share depends on the type of customer. Right? I think what we've seen to date is that CoreWeave has benefited from supply shortages, uh, uh, for GPUs. So you've seen customers like Microsoft lean on suppliers like CoreWeave to augment their capacity because they were able to get their hands on the chips that they needed and bring them online quickly. I think as we see a normalization of, you know, chip supply versus demand over time, we're likely to see the hyperscale customers pull that in-house. You know, uh, Microsoft CEO, Satya Nadella said not long ago that they viewed the arrangement with CoreWeave as a one-time thing. Um, I think CoreWeave does have opportunities among folks like AI labs, um, or to some degree enterprises, um, to lease out infrastructure to them. Again, I think that will replace, or more than replace what you might lose from a hyperscale perspective over time. Um, but again, it does come with a different credit profile, um, a bit of a different demand profile.

And Nick, why, why do you think the stock is pulling back today? Obviously, you had, you know, some of the, the capex concerns, but why is that a problem when it's really driven by just excess demand and they're pulling some of those forward? Why, why is the market reacting the way it is?

That's a great question. I mean, for you know, bear in mind that the stock is up, you know, over 50% since the IPO. So it's against the, the expectation of very strong performance. I think the revenue trends were encouraging. I think that when you're at the sort of valuation CoreWeave trades at, you really need to see everything line up, revenue, margins, capex for the stock to work, um, going forward. Uh, you know, so to the extent that there were some questions around that or, or some numbers coming in a bit light versus expectations, I think that easily explains the uh, the downdraft.

Nick, I also want to end with any expectation from you on any read through we can get from this print to Nvidia earnings. I know it's not a direct comparison here, but that's something that our audience is keenly interested in, of course. Any read through?

Well sure, you know, again, it's a bit of a unique circumstance because CoreWeave is effectively an Nvidia only shop and they've had a lot from, a lot of support from Nvidia over time. I think Nvidia have used CoreWeave as an important counterweight to the hyperscalers uh, to diversify the base into which they sell, um, and kind of hedge against the risk of custom silicon from the hyperscalers. You know, if you look at CoreWeave's numbers, it, it points to rapid growth. If you look at their planned data center capacity, they have 420 megawatts online today. I think they've contracted for about 1.9 gigawatts. They're going to fill that with Nvidia gear. You know, so I'd say generally speaking, that's a positive signal. I don't know that what we'd see out of CoreWeave is enough to, you know, materially influence how you think about Nvidia one way or another.