Nvidia Invested in This AI Stock — Now We Know Why

Welcome fools to another episode. Today we are going to take a closer look at Core Weef. The company just reported earnings and the market seems to like it as the stock is up over 10% after hours. Now in today's episode, what we want to do and by we I mean Neil and I, we're going to take a closer look at some of the red and green flags from earnings because there were some red things that we should kind of keep a closer eye on. But more importantly, I believe there was a lot and a lot of green stuff. At the end of the episode, we're also going to take a closer look at what this means for the top level AI investor. So, let's get started with today's episode. Now, before we continue with today's episode, if you want market beating stock picks from our analyst, make sure to check out the pin comment and the description. Using that link gets you a promotional offer as our thanks for being a viewer. Thank you. And let's get back to today's episode. Neil, we just finished listening to Core Weef's earnings. And as a shareholder, I know you're a shareholder yourself. Uh I think earnings were pretty strong. Um even if we don't include the price action, I think what we heard was pretty strong. And before I go on and talk for the next hour or so, I want to pass it to you first, uh Neil, to to kind of hear your overall thoughts and some of the things that you were keeping tabs on during these earnings. >> Yes. So it was a good quarter. Not just I'm we're not just saying this because the stock is up because that has been something very rare for core rift report. Stock usually dropped despite revenue being up triple digits etc. etc. But going into this report, coreweave among the Neocloud players by the way, Nebus report Wednesday before the market opens. We will also cover that probably on Wednesday or maybe Thursday. So stay tuned uh for that earnings review. But Nebus was up significantly year to date. Core was the one that was not really getting much love despite them generating more revenue than any other NeoCloud player out there. despite them having more active power than any other NeoCloud player out there. But the story going into this report was more about okay, they have a ton of debt, interest payments are going up. Can margins start to look much better? And this is something that 3 months ago management told us that is going to happen in the quarter and well, you can already guess it, but it did happen. It did happen and it's expected to continue, which is exactly what the market want to see. And of course they showed us a lot of other positive things which we will discuss in this video. But all in all this was a very good quarter for core especially because they were put in a very difficult position. Yeah. And and and Neil I mean you talked about margin. I think maybe that's what we should start off first and there's a few reasons for this margin expansion. Management make sure to give us the clarity of all of them. One of them is very simple. It's just uh because of the current dynamics in the AI space. um pricing of infrastructure tends to be a little bit better than what they previously modeled right so that's the first reason just the overall AI ecosystem you're able to get better pricing power the other thing uh that they mentioned is they are adding more services to their solution right it's no longer just many people think of core as just renting out GPUs and that's it they also have storage they have security they have software stack and that's also helping margin expansion so that's number do. Number three, the based on the commentary that they discussed, um it seems like the financial world is getting a lot more comfortable with AI infrastructure investments. And for that reason, especially with a company like Cororeweave that has a massive backlog, the debt and kind of the financing that they're working with um is getting better than what they had originally. They also have the ability to change some maybe refinance a little bit here and there on some older stuff that that's also helping margins. And the massive thing the massive thing is is kind of what you mentioned here on on.3 here in the slide Neil is scale is starting to work at their favor. A few quarters ago, they were less than a one gigawatt of active power. And active power for those that are not familiar is revenue generating solutions is revenue generating infrastructure. When you back then when they were growing their power or their active power, it was type of much larger than what they actually had. So there was a form of leverage and when you're building faster than what you actively have generating revenue, that compresses margins a lot. But now they're sitting prior to this quarter 1 gawatt of active power. And they did grow a lot of active power this quarter and we'll talk about that in a bit. But now while they're still growing massively in forms of numbers and I think they even mentioned that in forms of active power that they threw this quarter, it's much larger than all the Neocloud's players have right now just to put that in perspective. But it's no longer on a leverage basis compared to what it used to be. And that helps margin a lot. So I if there's a reason for margin expansion I would say it's a little bit of those four things Neil I don't know if I missed something on that margin thoughts um or if not feel free to to add on to to something else here. >> Active power at the quarter end sits at over 1.5 gawatt so they added like you said 500 megawatt in one single quarter which is the most for the company. 4.2 gawatt contracted power as of right now up from 3.7 gawatt at the quarter. And they also had 51 active data centers worldwide. They added eight in 2026 year to date. And they're still expecting over eight or around 8 gawatt for their target of 2030. Now capex of course is increasing. uh the the capex growth is accelerating faster than analyst expectations which makes sense right because if there's more capacity coming online you would expect capex to to grow and increase as well now they did also say that more than 1 gawatt of contracted power is now outside the United States including a new entry into a pack with 360 megawatt in Indonesia expected to be online in around 18 months the management did point out to international market as a major growth uh driver. So not just uh the US but they're expanding uh their portfolio which is of course a big positive if there is let's say location risk. So I I really did enjoy the overall earnings call um for for me obviously the commentary on the active power buildout we got the confirmation like we saw of of the uh margin expansion and the reasons behind it. It's not just one, it's multiple. Uh, and then like you kind of brought out, we're seeing expansion of that contracted power as well. Uh, I I know one thing um that we could also look into here is is backlog. Uh, maybe some investors might see this as both a bullish and bearish case. Neil, bearish thoughts here. if you had any on the backlog right now. >> I mean, do I do I have to make up uh bearish takes to to look at at a backlog that has been increasing significantly year over year? I mean, backlog is of course a number where you still have to invest and spend to get this recognized. So, I guess we know we see this backlog at $104.2 2 billion, which by the way excludes more than $25 billion of net new customer commitments signed in early Q3, which is the quarter we're in right now. If we see the revenue that they're generating today, we'll look at the guidance in a bit. Of course, to go and get that 104 plus or $120 billion over the next 24 or 48 months, it's going to take time. It's going to take very very good execution and of course a lot of spending. But as you said before, as this company grows more and more, they will be generating billions of dollars in revenue. And eventually as margins start to expand, those billions of dollars or part of those billions of dollars will start to flow to their bottom line, which of course completely completely changes the discussion around a new cloud player. Yeah, if if I was to give one bearish take here, uh, Neil, it's just while we did see growth in backlog, I think sequentially it was only like 5 billion uh, backlog growth, but like you mentioned, maybe they just due to certain timing issues, maybe they didn't really sign new customers into early quarter 3, right? So, I I could see certain bears kind of say, oh, backlog actually didn't grow that much on a sequential basis. Uh the other thing Neil that might scare some investors and I want to give another another take to it is we did see that near-term share of revenue fell that that revenue that's going to be collected within the next 24 months based on their backlog um went from 50% to 40%. Many investors might say, hm, maybe these customers, right? Why why aren't they growing in the short-term base and why is everything more long-term dated? To me, the main reason is that capacity, the issue of capacity. There's no way that cororeweave can contract more on the lower term just because of the amount of capacity and AI infrastructure that they have. So, while it might seem like interesting that most of it is back is longerdated, the main reason is they're already sold out for I would say the short term of things within this year and most likely most of next year. >> Yeah. I mean, and on on that note, they talked about the A100s. When we talk about long-term contracts, they said something about the A100s as well. And A100, for those that don't know, those are Nvidia GPUs that came out in 2020, I believe. So around 6 years ago and they said that they signed a A100 GPU contract extension to 2029. So clearly those skeptics around all the life value of a GPU only being 3 years only being four or five or six here in this case it's a 2020 GPU and they just said we have a contract to until 2029. the pricing there according to them was also quite attractive. Yeah. And and I mean a lot of these GPUs I I wonder if we start to see eventually maybe longer depreciation on these GPUs. We a lot of places have gone from four to five uh to some six. I wonder if this pushes that out to even longer and I I wonder how the market might react to it. But if you're selling out on an A100, I think that's very bullish, not just for the NeoCloud space, but just telling you the demand for AI is so crazy that you're willing to go and use three, four generation old GPUs. >> Yeah. No, it's it is a bareis. Well, it's popping the the bubble in the bareis world. I would say it's it's the exact opposite of what the bears were expecting. Again, execution here is key because when we're talking about backlogs of over hundreds of billions of dollars and a company generating just over $2 billion in revenue, still a long long way ahead and and they are diversifying, right? They are diversifying their business. They talked about the inference side of things, right? AR R there grew from I believe around a million dollars in ARR to over $und00 million in a single quarter and they expect for the fullear AR R to be at around $250 million. So again the business is growing and diversifying as well which is exactly what you want to see. So it's I mean it's great that the stock is finally catching a bit but it's it's definitely much better to see the company and the business continue to execute and actually go in the right direction. Neil, now I I mean, we talked a lot about the different bullish cases here. Um, I think we should also kind of give some of the bearish takes here. Um, and and I I want I I have a few, but I'm going put you on the spot here. Do you have any bearish takes out of this earnings call? >> We do have still a company that has a lot of debt that still has a growing interest payment coming in every single quarter. I believe it's this quarter was around $660 million or so. That's expected to be higher next quarter. So again, any delay could impact them very negatively, right? You can have delays in data centers, in GPU deployments, but you cannot have delays in interest payments. So knowing that that number is still quite big is is I guess one of the one of the negative things. I'll I'll pass it uh right back to you and then we can go and look at the forward guidance. >> Yeah. Yeah. I mean I I would say kind of to add on to that, right, Neil, they um capex extremely large, right? Um uh and and we'll probably look at the number in a bit, but capex you're talking about kind of money that some of these hyperscalers were spending maybe just five, six, seven years ago. So uh in forms of of capex, it's going to eventually be built out as debt. So you should expect at least some of that interest payments to stay pretty high um high now increasing capex you increase debt and then the possibility of what happens if this AI buildout isn't as crazy as it's expected to be what are they going to be left over so I I wanted to add on with that the second thing Neo is this is a company that in my opinion has really focused a little bit safer in the NeoCloud space where they've only gone with long-term contracts and within these long-term contracts they know that hey by year four, by year three or by year four, economically I've made a great investment and ROI proceeds really well with the GPUs. It seems now they're willing to take shorter contracts, which is the current dynamics is is is very bullish because pricing on shorter contracts is really well, but now it it it opens up that risk that what happens if after that shorter term contract, they can no longer get those GPUs rented out, which I don't believe it's the case continuously since I I really am an AI AI bull, but I think that's an added risk if you're not excited about the AI industries. like now shorterterm contracts what happens after that contract runs out and you're not able to get the GPU so you're adding a little bit risk on the normal business uh uh per se um before we jumped on guidance anything there Neil that I might have clicked or or not >> I mean it it does seem like and it's just not a not only a core wave thing but whenever a company faces some negative comments on whatever they're doing with their business once they find a solution or that solution seems like they are pivoting, the market might find it strange. But in in this case for a core wave or any other new cloud players out there as well. If they feel like going after two, threeear contracts, enterprise contracts makes a lot of sense for them because margin- wise, it makes sense, why not do it? Especially now that they are in the early buildout cycle, right? Cuz if you can get way more money early on, why not do it? Once you reach 4 gawatt or so, you are going to be generating tens of billions of dollars in revenue and then yeah and then maybe you you'll be looking for long-term contracts even though I do still think that short-term contracts are completely fine because the demand is going to be there especially in the enterprise field. And so it is a very good strategy for them to be able to do these two to three year enterprise contract, get an extra premium, get more money in, invest more in the business, maybe grow even quicker and then chase maybe some some of the bigger hyperscaler contracts. So I I do think it makes it makes a lot of sense for them. >> Definitely. Neil, now let's jump into that guidance. I know um we got some interesting numbers in both fullyear capex and everything ARR and active power. I I'll send it your way cuz I'm just looking at this and I'm already getting excited. >> Jose's excitement will have to wait. So for Q3 we are expecting 3.45 to3.6 billion in revenue which is also slightly better than what the market was expecting. And this by the way means that they're expected to grow over 150% year-over-year which is an acceleration in growth. Adjusted operating income between 200 and $260 million. Interest expense as you can see is still quite big. It's bigger than this quarters over 600 million. Next quarter is between 860 to 940 million and capex is going to be at $12.5 billion at uh the midpoint. Now that's for the full year. I'll start off with capex. It has been raised to 35 to 39 billion which goes back to what we said before. If this company does build faster or deploys these GPUs faster, it makes sense that capex increases. You would not want to see the opposite happen. Capex increasing and then delays in revenue recognition. That would be the worst. Revenue expected to be between 12.4 to 13.2 billion. Adjusted operating income, it's not operating income, it's adjusted operating income. 960 million to $1.15 billion. And then I'll leave the last two points, the exit annualized run rate and active power by year end to Jose because he's very excited about those two numbers. Yeah, Neil, I mean, let's start off with that active power. For me, that's that's the biggest thing because active power is that generating revenue number. Uh so prior guidance we had roughly 1.7 gawatt that they said more than 1.7 gawatt. Now we saw that this quarter alone they added 500 megawws and because of that they were comfortable they felt comfortable increasing that active power by over 1.85 gawatt. Now Neil one thing that I I I did see from other data center place is because data centers are becoming not a new norm but it's no longer uh a new style of product to build construction companies and and and whoever designs is getting a lot easier. If it's getting a lot easier, you're building easier because of experience. It's and so the time of building these data centers is accelerating a bit. Uh so I wouldn't be surprised if next quarter we get another update on some of these active power by year end. Um on the unfortunate side, you also have any room for delays due to random supply chains, due to legal issues, whatever. But management felt really comfortable with that 1.85 exit annualized revenue run rate. Um, which I believe I think every company does it might do a little bit different. I think Cororewave does last month time 12 maybe most companies do that but just a small asterric that there might be some companies that do it a bit different. Uh, but as exit annual run rate they expect to be 19.5 billion on the top end which I mean showcases that they really do have a nice revenue potential coming out of this AI infrastructure build. As for an FYI, currently the market expects revenue for core to be 12.6 billion for this fiscal year, $25.4 billion for fiscal 27, and just over $40 billion for fiscal 28. Massive growth there, Ne. And I mean, I I I think what we got from this earnings call is just we have other NeoCloud players reporting this week or later this month. Um, but commentary even though they're all in different parts of the business, the commentary that we can get is older GPUs are still making money. That's not just going to be a core thing. That's going to be any NeoCloud player. Pricing continues to be um favorable for the NeoCloud players. Uh, and and then the demand for for tokens we'll probably talk about in another episode, but um new solutions are coming out. Corwe mentions that one of the new growth opportunities for them seems to be life science right so um many people just think of AI chat bots or AI agents but there's a vast amount of sectors that are just getting started with AI and the opportunity for them is there now obviously fools I'm extremely bullish in this company uh and there's other videos out I I would say other videos out on the mly fool channel where they are a little bit more bearish on this on the Keller name so um that's The great thing about investing, investors have different thought process, different ideas, and um it's it's it's what your thesis is built on. Uh Neil, any final thoughts or topics you want to look into before we close out the episode? I mean, this is a great start for the NeoCloud earning season. Let's say we had Cor, we'll have Nebus in about 12 hours from recording this. And then we have all the other new cloud players that will report as well over the coming days and weeks. We have Nvidia reporting of course at the end of the month but everything here indicates especially what we've heard from the hyperscalers themselves. The growth is there, the demand is there. I I don't see how this slows down anytime soon. And we we might do another episode talking about the memory space. And I do think that if memory prices will peak in 2027, doesn't mean they will crash, but if they will peak in 2027, of course, that that creates huge opportunities for all the other players in this AI field. >> Definitely fool. So, thank you. Stay tuned for all that and see you all next