CoreWeave's Price Drop: A Classic Expectation Gap on Nvidia's Stake

The recent slide in CoreWeave's stock is a textbook case of "sell the news." After a massive run-up, the market has aggressively reset expectations downward, with the stock falling 35.84% over the last 120 days. That decline follows an even more dramatic rolling annual return of 105.5% since its March IPO. This pattern-where a stock rises on anticipation and then sells off after the hype peaks-is now playing out in full force.

The catalyst for this reset is a shift in the narrative. The initial rally was fueled by the powerful story of a deep partnership with Nvidia, a relationship that seemed to guarantee demand. But as the stock climbed, the focus narrowed to the financial mechanics of that partnership. The market began to scrutinize Nvidia's ~$300 million stake against CoreWeave's $42 billion valuation. CEO Michael Intrator dismissed concerns about "circular financing" as "ridiculous" and argued the stake is "de minimis". The market, however, is treating this as a material risk. The expectation gap has opened wide: the company sees a minor investment, but the market is pricing in the potential for that relationship to be a source of vulnerability.

This divergence is clearest in analyst sentiment. The average price target of $126.43 implies significant upside from recent levels. Yet, that consensus sits alongside a more cautious view from Goldman Sachs, which initiated coverage with a Neutral rating and a $86 price target. Goldman's caution highlights the new risk calculus, citing near-term volatility and the company's substantial debt load. The market's 36% drop over three months suggests it is leaning into that more cautious, risk-aware view, effectively saying the easy money from the Nvidia story is in the past.

The Nvidia Dependency: A Backstop or a Valuation Overhang?

The relationship between CoreWeave and Nvidia is a two-edged sword, creating both a powerful financial backstop and a significant valuation overhang. The market is now pricing in the latter, treating the partnership as a risk rather than a pure growth driver.

The interdependence is stark. Nvidia holds a 7% stake in CoreWeave, but the true entanglement runs deeper. CoreWeave accounts for over 86% of Nvidia's $3.84 billion AI investment portfolio. This isn't just a customer-supplier link; it's a core holding for Nvidia's own AI strategy. For CoreWeave, this translates to a massive revenue guarantee. Nvidia has committed to purchase $6.3 billion of unsold cloud capacity through 2032. This is a critical backstop, providing a floor for revenue even if demand from other hyperscalers softens.

Yet, this very guarantee raises the central question the market is now focused on: Is this real end-user demand, or is it a circular arrangement? The $6.3 billion commitment is a demand-sustaining mechanism, but it doesn't prove that the broader AI market is scaling at the pace CoreWeave's valuation implies. The market is now treating this partnership as a potential vulnerability. If Nvidia's own financials or AI spending plans shift, any perceived change in that commitment could trigger a sharp re-rating. The stock's 60% drop from its June peak shows how quickly sentiment can turn when the narrative shifts from "guaranteed demand" to "artificial support."

The bottom line is that the Nvidia relationship has become the single biggest catalyst for CoreWeave. It provides a tangible floor for the business, but it also anchors the stock's valuation to the fortunes of a single, albeit dominant, partner. For now, the market is betting that the overhang outweighs the backstop, pricing in the risk that the easy money from this partnership is running out.

Financial Reality: Growth vs. Profitability and the Guidance Reset

The market's recent reset is a direct response to a widening gap between CoreWeave's spectacular growth and its fundamental profitability. The numbers are staggering: revenue surged 235% year-over-year to $1.36 billion in Q3, and the company now carries a record $55.6 billion revenue backlog. This is the "buy the rumor" story in full bloom. Yet, the operational reality is a persistent net loss. The company posted an $863 million net loss last year, and while it narrowed the quarterly loss in Q3, it remains deeply unprofitable. The market is now asking: Can this growth model ever become sustainable?

The IPO scaling back is the clearest signal of a guidance reset. CoreWeave initially targeted a valuation closer to $23 billion than the roughly $30 billion it had originally targeted. This wasn't a minor adjustment; it was a significant downshift that acknowledged a more cautious market view on the company's growth assumptions and the risks of its capital-intensive model. The scaled-back offering, raising about $1.5 billion instead of a potential $2.7 billion, reflects a loss of premium pricing power and a direct concession to investor skepticism.

The key risk is a failure to show a credible path to profitability. The current stock price must embed a high probability that CoreWeave can transition from its current state of massive revenue growth but deep losses. The company's financial position is supported by substantial debt financing, including a $2.6 billion delayed draw term loan facility, which provides runway but also amplifies financial risk. Until CoreWeave can demonstrate that its 61% adjusted EBITDA margin can translate into sustained GAAP profitability, the valuation will remain vulnerable to any stumble in growth or a shift in sentiment toward its debt load. The market is no longer just pricing in the Nvidia story; it's pricing in the immense challenge of turning this growth into profits.

Catalysts and Risks: What to Watch for the Next Expectation Shift

The current price is a bet on a future that is not yet proven. To move toward the analyst consensus or away from it, investors must watch for three key developments that will either close or widen the expectation gap.

First, the market needs to see organic demand beyond the Nvidia backstop. The record $55.6 billion revenue backlog is impressive, but the critical test is how quickly that backlog converts into revenue and whether it comes from new customers or is solely driven by the $6.3 billion commitment. Watch for Q4 revenue growth. If it shows a strong acceleration that can't be fully attributed to Nvidia's guaranteed purchases, it will signal real end-user demand is scaling. A slowdown here would confirm the market's worst fears about circular financing and validate the risk of the partnership being a valuation overhang.

Second, monitor any shift in Nvidia's public stance. The market's view of the partnership is central to CoreWeave's valuation. While Nvidia has been a consistent backer, any public comment questioning the pace of AI adoption, the sustainability of its own spending, or the need for such a large capacity commitment would be a major negative catalyst. The fact that Nvidia has 86% of its equity portfolio in CoreWeave creates a powerful alignment, but it also means the stock is tethered to a single, albeit dominant, partner. Any perceived change in that strategy could trigger a sharp re-rating.

The key risk, however, remains a failure to show a credible path to profitability. The current price must embed a high probability that CoreWeave can transition from its current state of massive revenue growth but deep losses. The company's $863 million net loss last year is a stark reminder of the challenge. Until CoreWeave can demonstrate that its strong adjusted EBITDA margins can translate into sustained GAAP profitability, the valuation will remain vulnerable. The IPO scaling back to a $23 billion valuation instead of $30 billion is a direct concession to this skepticism. The market is no longer just pricing in the Nvidia story; it's pricing in the immense challenge of turning this growth into profits. Any stumble in that journey will likely be punished.