On July 1, several media outlets reported that Meta Platforms (NASDAQ: META) was forming a new business unit, internally dubbed “Meta Compute”, to sell its excess AI cloud capacity to third-party customers. Meta will reportedly sell both its raw GPU computing capacity and remote access to its infrastructure to companies so they can run their own AI models.
Shares of CoreWeave (NASDAQ: CRWV), a leading neocloud provider that provides many of the same services, have dropped nearly 11% since that news broke. Does that pullback represent a buying opportunity or a dire warning for the company’s future?
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Why did Meta’s strategic shift crush CoreWeave’s stock?
Meta’s strategic shift surprised CoreWeave’s investors, since Meta had just agreed to pay CoreWeave $21 billion through 2032 for its neocloud services this April. Meta also struck a similar multi-billion dollar deal with another neocloud company, Nebius (NASDAQ: NBIS).
Therefore, it might initially seem odd for Meta to sell its own cloud computing power when it clearly needs it. Meta’s agreements with CoreWeave and Nebius also prohibit it from reselling any of that cloud computing power, so it can only sell the excess AI cloud capacity at its own first-party data centers.
However, Meta plans to invest up to $145 billion this year in expanding its own AI infrastructure. As it builds more data centers, some of those servers will remain idle until they’re fully utilized by its social networking platforms and AI services.
To avoid wasting too much cash and energy on underutilized servers, Meta wants to rent them out to third parties — a move that could transform it into a formidable competitor to companies like CoreWeave and Nebius. CoreWeave’s other major customers, such as Jane Street and IBM (NYSE: IBM), could also eventually follow the same playbook if they decide to expand their cloud infrastructure.
On the bright side, CoreWeave’s largest customer — Microsoft (NASDAQ: MSFT) — probably won’t do the same thing because it’s already one of the world’s biggest cloud infrastructure companies. Instead, CoreWeave will continue to serve as an “overflow tank” for its cloud services.
Does the pullback represent a buying opportunity?
From 2025 to 2028, analysts expect CoreWeave’s revenue to surge from $5.1 billion to $40.3 billion as its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soars from $3.1 billion to $25.7 billion. With an enterprise value of $91.2 billion, it still looks like a bargain at 7 times and 13 times this year’s revenue and adjusted EBITDA, respectively.