CoreWeave stock flashes a warning sign despite strong revenue growth

CoreWeave stock has pulled back in the past few weeks and is now hovering at its lowest level since August 3. CRWV dropped to $82, down by over 40% from the year-to-date high. This retreat may continue after the stock made a risky chart pattern despite its strong revenue growth. 

CoreWeave stock technical analysis shows a risky pattern has emerged

Technicals suggest that the CRWV stock may be on the cusp for a strong bearish breakout in the near term. It has already dropped below the 50-day Exponential Moving Average (EMA), a sign that bears have prevailed.

A closer look, however, suggests that the stock has formed a head-and-shoulders pattern. In this case, the head is at $137.75, its highest level on May 6 this year. The left and right shoulders are at $115 and $117, respectively, while the neckline is at $64. 

These technicals suggest that the stock has more downside to go, with the initial target being at the neckline at $64. A break below that level will point to more downside, potentially to the psychological level of $50. The bearish outlook will become invalidated if it jumps above $117.30.

CRWV stock chart | Source: TradingView

CoreWeave is growing, but key risks remain

The weak technicals come at a time when the company’s fundamentals are among some of the best. This growth is happening at a time when most of the biggest AI labs in the world are embracing its data centers. 

Some of the biggest customers are companies like OpenAI, Anthropic, Microsoft, Meta Platforms, and Mistral. It also offers its solutions to Jane Street, a top high-frequency trading (HFT) company.

This growth is seen in its recent numbers. Its revenue jumped by 112% to $2.6 billion, while the adjusted EBITDA soared to $1.5 billion. The company’s backlog has also continued soaring and currently stands at over $104.2 billion.

These numbers mean that demand continues rising, and this trend may accelerate as AI data center spending surges.

There are a few reasons why CoreWeave stock is under pressure and its short interest has soared to 15%. One of them is that the cost of doing business is soaring as the cost of key products like servers and storage jumps. 

Another one is that its debt load keeps soaring. It ended last quarter with nearly $30 billion in debt, much higher than where it started the year. It also has over $15.7 billion in operating lease liabilities.

Most notably, there are signs that the industry is getting highly competitive, with more companies entering the business. For example, Anthropic has reached a $35 billion deal with Lambda, a company backed by Nvidia. 

Just recently, Anthropic entered a $45 billion deal with Nscale. Other companies like RIOT Platforms, Mara Holdings, IREN, and Nebius are gaining share. At the same time, OpenAI continues to build its data centers, and it recently reached a $105 billion financing deal with Nvidia.