CoreWeave and Nebius Group Deliver Earnings Shocker. Here’s What It Signals About the Future of AI.
One of the biggest questions among investors these days is what the future holds for artificial intelligence (AI). After several years of rapid adoption and impressive stock price gains, some investors have taken a step back, looking for insight into what comes next.
One area of interest is neocloud operators, a nascent segment of cloud computing that stockpiles graphics processing units (GPUs) and other infrastructure to provide users with the computational horsepower needed for AI without all the bells and whistles — often called GPU-as-a-service (GPUaaS).
CoreWeave (CRWV +19.23%) and Nebius Group (NBIS +28.23%) are the standard-bearers for the movement and, as such, have captured the attention of investors as bellwethers of the adoption of AI. CoreWeave reported its quarterly results after the market close on Tuesday, and Nebius Group was close on its heels on Wednesday. To say the results caught investors off guard might be an understatement.
Image source: The Motley Fool.
Weaving together an impressive quarter
CoreWeave holds the title as the world’s largest and most dominant neocloud provider, and the company’s second-quarter results help illustrate why. Revenue of $2.58 billion more than doubled, up 112% year over year. CoreWeave continues to invest heavily in the infrastructure needed to increase its compute capacity, which weighed on its bottom line. As a result, its per-share loss widened to $1.14, up from $0.60 in the prior-year quarter.
To give those numbers context, analysts’ consensus estimates called for revenue of $2.56 billion and a loss per share of $1.41, so the company cleared expectations by a comfortable margin.
Founder and CEO Michael Intrator said, “CoreWeave reached an important inflection point this quarter as our scale began to translate into expanding operating leverage.”
More telling was the company’s growing backlog, which soared 246% year over year to $104.2 billion. That growing book of business translated into a robust forecast.
For the third quarter, CoreWeave outlook calls for revenue in a range of $3.45 billion to $3.6 billion, or revenue growth of 158% at the midpoint of its guidance — which suggests adoption is accelerating. Management also boosted the company’s full-year outlook, forecasting revenue of $12.8 billion at the midpoint of its guidance, up from $12.5 billion issued just three months ago.
Investors cheered, sending the stock up 20% on Wednesday morning (as of this writing).
Today’s Change
(19.23%) $17.37
Current Price
$107.69
Key Data Points
Market Cap
Day’s Range
$105.44 – $111.83
52wk Range
$60.55 – $153.20
Volume
65.6M
Avg Vol
28.5M
Gross Margin
34.82%
Blistering growth
If CoreWeave’s results were impressive, Nebius Group’s were doubly so, albeit from a smaller base. For the second quarter, revenue surged 454% year over year to $582 million. The company reduced its adjusted net loss to $33 million, down from $92 million in the prior-year quarter, resulting in a loss per share of $0.68. However, the company delivered adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $236 million compared to a $21 million loss in the prior-year quarter, or adjusted earnings per share (EPS) of $0.90.
For context, analysts’ consensus estimates called for revenue of $575 million and adjusted EPS of $0.86, so Nebius cleared both hurdles with ease.
The company maintained its full-year outlook of revenue in a range of $3 billion to $3.4 billion — suggesting year-over-year growth of 466% at the midpoint of its guidance.
But it was management’s commentary that got investors most excited. The company rolled out a new pricing strategy that is already paying dividends. Nebius launched its first-ever use of pricing auctions to boost revenue, as well as some short-term deals for time-sensitive customers willing to pay more.
In the wake of its results, Nebius Group stock soared, gaining 28% (as of this writing).
Today’s Change
(28.23%) $54.55
Current Price
$247.78
Key Data Points
Market Cap
Day’s Range
$216.11 – $247.88
52wk Range
$62.01 – $299.86
Volume
41.4M
Avg Vol
20.1M
Gross Margin
7.48%
What this means for the future of AI
CoreWeave and Nebius both delivered results that took Wall Street by surprise, which has implications for the broader AI space. Both companies are scrambling to add capacity as quickly as they can, as demand continues to outstrip supply. Indeed, both neocloud operators report that additional capacity is sold out as soon as it comes online.
Early in the advent of AI, investors questioned whether the technology would deliver sufficient return on investment (ROI) to justify adoption. Recent studies suggest that as businesses become more accustomed to AI, they are realizing efficiency gains, reducing error rates, and boosting employee productivity, contrary to earlier reports.
This helps explain the robust quarterly results and relentless demand for our two neocloud operators. The biggest takeaway from CoreWeave and Nebius’s blowout financial reports is that — as previously stated — demand continues to outstrip supply. This suggests that AI continues to grow rapidly and remains an intriguing opportunity for astute investors.
