CoreWeave Stock Drops. This Could Slam the Brakes on Its Growth Plans.

CoreWeave expects capex of $20 billion to $23 billion this year to build data centers. (Courtesy Meta)

CoreWeave stock was falling early Wednesday as the market gauges its plans to rapidly expand artificial-intelligence infrastructure. The question is whether the AI cloud company can find a sustainable way to finance the buildout.

CoreWeave shares were down 18% at $121.85 in early trading, following an earnings report that underlined strong demand for its services but also a wider-than-expected loss amid heavy spending.

The company has to invest billions in data centers housing Nvidia chips in order to serve the growing AI needs of customers like Microsoft . CoreWeave has guided for $20 billion to $23 billion in capital expenditures this year, with a “significant portion” to come in the fourth quarter.

That means CoreWeave will likely need to take on more debt. D.A. Davidson analyst Gil Luria estimates the company will need to add around $10 billion more debt during this year in order to support its data-center expansion plans and noted its interest expenses currently outrun its operating income.

“Earnings…were underlined by deteriorating profitability and increased borrowing cost. This continues to be a business that is, in our view, not worth scaling,” Luria wrote in a research note. He reiterated his Underperform rating and $36 target price on the stock.

CoreWeave does have one strategy to expand without using debt—acquiring other companies using its highly valued equity. That’s what it’s trying to do with an all-stock deal for its infrastructure partner Core Scientific , which was announced in July in a deal worth $9 billion at the time.

“We believe the combination will accelerate value creation for shareholders of both companies. Both CoreWeave and Core Scientific management teams and boards have evaluated this transaction extensively and concluded this is the best for both companies and their shareholders. Our respective teams are already engaged in pre-integration planning to ensure we’re ready to hit the ground running,” CEO Mike Intrator said on the company’s earnings call.

However, as Barron’s has noted, the acquisition of Core Scientific has been put in doubt by CoreWeave’s own stock fall since the announcement, which reduces the nominal value of the acquisition. Core Scientific shares were down 6% at $14.18 in morning trading.

Two Seas Capital—an alternative investment firm holding around 6.3% of Core Scientific—has publicly said it intends to oppose the deal unless the terms are revised.

The fate of the deal is likely to depend on CoreWeave’s share performance, and that could be held back by the expiration of its initial public offering lockup at the close of trading on Aug. 14, which will allow insiders and early investors to sell stock.

“CoreWeave may take a breather given flattish revenue backlog from May and a back half revenue guide that was only a little above the street,” wrote Melius Research analyst Ben Reitzes in a research note. “Also, we note that after the close on August 14th shares are removed from lock-up, which could prompt dilution and some selling pressure.”

Reitzes kept a Hold rating on the stock but raised his target price to $128 from $110.

Write to Adam Clark at adam.clark@barrons.com