Exploring CoreWeave: An NVIDIA-Backed AI Play
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Are we talking about the hottest stock in the market? Motley Fool Money starts now. I'm Arun Chakrabarty and I'm joined by two of my favorite Fools, Lou Whiteman and Rick Menarres. Today we're talking about a Shopify lawsuit lodged by another Fool favorite. We'll bring out the hype meter on an Nvidia related stock and we'll pick today's most interesting earnings.

Before we dive into the rest of today's show, here are a few headlines on our radar. Inflation is still in check. The latest CPI reading has inflation at 2.4% with help from items like lower gas prices. In inflation-adjacent news, the details are always morphing, but the China and U.S. trade talks are trending with a green arrow, we'll say.

OpenAI is adding Google Cloud to help power ChatGPT, a shift from exclusively using Microsoft Azure and a win for Google's Cloud business. So upgrade ChatGPT from an enemy to a frenemy as ChatGPT still threatens Google search business. This week, Starbucks is hosting its annual leadership conference in Vegas as it keeps its back to Starbucks aim of getting me my tall decaf Americano in four minutes or less.

On earnings, we had a few notable ones from the full universe. GitLab, Stitch Fix, and Chewy are all down sizably today. Lou, I'll give you the choice. Which is the most interesting?

We have a dog in our life, so my gaze naturally falls on Chewy. You're right, Chewy is down big. They're down about 10% right now. It was actually a really solid quarter. Earnings per share were just above expectations. Revenue up 8% from last year and a little better than what Wall Street had expected.

Active customers grew by almost 4% from a year ago. Those customers are spending more. They're spending about $583 annually, which is up 3.7% from a year ago. The issue, if there is an issue, well, yeah, guidance. Chewy is forecasting revenue growth to slow slightly in the current quarter to about 7.5% at the midpoint. Full-year sales, about $12.3 billion to $12.45 billion. That

is at the midpoint. It's a bit of a downside to the $12.4 billion consensus. But Rick, it feels to me like this is a lot more to do with macro uncertainty and what's going on with the consumer than it does anything specific to Chewy. Stock's not cheap, trading at 33X future earnings, but the growth story at Chewy appears to be intact, and that's what investors are looking for.

Yeah. One of the more frustrating things about watching Chewy in recent years was seeing its active customer base slide from 2021 all the way to 2023. It closed out 2021 with 20.7 million active customers, only to fall to 20.4 billion active shoppers in 2022 and 20.1 million in 2023. It bounced back to 20.5 million by the end of last year, and now it's back above 20.7. So that's great. Chewy played dead, and then it rolled over out of stock.

But I think it has a much better report than the market's response is suggesting. The shares, they were on a tear heading into the Fresh Financials. They almost doubled over the past year. Sometimes that stock can be priced for perfection. See what I did there? Oh, I saw it, Rick. Every time we talk Chewy, I think about Pets.com maybe being 20 years too soon in the hype cycle. Which brings us to our next segment, the hype meter, right after this break.

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It's time for the hype meter. Rick, you spent a career trying to separate the future Mag7s from the pretenders. We've got an AI hyperscaler that's backed by NVIDIA. Core, we have IPO'd in late March. And as you might guess when you mix words like AI and NVIDIA seal of approval, its stock has quadrupled in less than three months.

The hype meter goes from a 1990s era Amazon at a one to a pandemic era celebrity-backed SPAC at 10. So a one is believe the hype and get some money in now. And a 10 is this is all hype. Run away. What are you ranking, Corweave?

I'm going with a three, and I wish I could go higher. This company has one of the most punchable face origin stories you'll ever hear. So it started eight years ago by a couple of hedge fund bros who bought GPUs to mine Ethereum as a hobby. So they're crypto dudes. And then CoreWeave was initially called the Atlantic Crypto Corporations.

And so, when the crypto market crashed a couple years later, Atlantic Crypto, they sort of shifted gears and became CoreWeave. It took advantage of the pullback in digital currencies to snap up GPUs from failed crypto mining companies like they were doing, and then refreshing its business model to use its growing arsenal of graphic chips in an infrastructure playground, catering to special effects companies and generative AI startups.

So, getting in on the ground floor of an emerging industry can be pretty sweet. And Corweave's business, it's booming. It generated $1.9 billion in revenue last year. It's on track to top $5 billion this year. Analysts see Corweave's top line clocking in more than $11 billion next year, $16 billion in 2027, and more than $21 billion in 2028. Put another way, Corweave's annual revenue is expected to soar tenfold in the next four years. So, talk about putting the hype in hyperscaling. But

It's losing money, and the deficits do keep widening. However, analysts see CoreWeave turning profitable on an adjusted basis next year and on a reported basis the following year. There are two things I think that can trip CoreWeave up at this point. The first is

Microsoft accounted for 62% of its business last year. I don't think that's a big deal. Clearly, CoreWave's client base is going to grow beyond Microsoft Co-Pilot and ChatGPT as the AI boom tosses out a bigger net. The other potential trip up does bear watching. Offering up a cloud-based infrastructure platform, and it's building out data centers while also leasing capacity elsewhere, is going to attract a lot of new competitors in the coming years. Is CoreWave differentiated enough to stand out, or is it just another commodity market in the making? Something that the

founders know all too well from their energy trading days. The amazing thing here is that CoreWeave went public at $40 in late March, as you said, and for the first few weeks, you could have bought the shares in the mid-30s. In less than three months on the market, it has gone from a broken IPO to a four-bagger, only in New Jersey.

Lou, any thoughts on CoreWeave? A lot of us a few months ago, did you just think this was the name of a Pilates workout? Yeah, it's a legs day for me. It's not a CoreWeave day. I'll say this, I love equipment leasing businesses. I love the economics of these businesses. I have a lot of net worth tied up in aircraft lessors.

But it works with aircrafts because airplanes, they have 50-year lives. I'm concerned about this model loading up on debt to buy GPUs, which become outdated basically the second they're installed. That would be my big caution. Just watch the debt, watch the growth, and hopefully, this can keep running. But there is some risk with just taking on all those GPUs. They get old quick, right? Either rebuying CoreWave?

Not me. Not yet. Unfortunately, I didn't buy it back in March when I could have gotten it as the broken IPO. So watching sadly from the sidelines, but interested, intrigued. Right on. But you rated it a three, so that's very low hype. So something for our radar. I think it's living up to the hype. So yes, a low score. Lou, have I heard right that two full favorites are fighting?

You did hear right. Sezzle, who is a really interesting player in the buy now, pay later space, they filed a lawsuit, antitrust lawsuit against Shopify, alleging that Shopify is engaging in monopolistic and anti-competitive practices to limit buy now, pay later competition on its platform. Got to read into that to limit Sezzle, right? And look, I have a lot of respect for Sezzle, but I read this suit and, you know, kind of my reaction was, come on, man, I don't get it.

it. Sezzle isn't being excluded from Shopify. In fact, about 5% of Sezzle's revenue comes from Shopify. The complaint seems to be that someone other than Sezzle is the preferred buy-now-pay-later option on Shopify. And look, we'll see how it plays out. I'm not a

I don't think the court should care that Shopify is a preferred vendor. It feels like this is a Sezzle problem. For years, retailers have chosen not to take Amex cards or to charge fees if you pay in certain ways.

It feels like the same thing to me here, guys. I don't see why Shopify should be stopped from basically doing what others have done, which is working with a preferred partner. And you know what? I think the market agrees. The day this was announced, Shopify stock was up and Sezzle fell. So, I don't know. That's not the jury, but it is a jury, I think. Yeah. And if Shopify feels that it's about to lose the legal, as the legal process plays out, it can always turn to Sezzle to settle now, pay later, SNPL. Yeah.

There you go.

All personal finance content follows Motley Fool editorial standards. It's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rick Menarez, and the entire Motley Fool money team, I'm Anand Chakrabarty. We'll see you tomorrow.