CoreWeave's AI Ambitions Hit a Bump: Data Center Delays and Rising Costs

CoreWeave's shares dropped nearly 9% following a reduced revenue forecast due to data center issues amid strong AI demand. Despite deals with tech giants and a successful IPO, rising infrastructure costs and AI chip prices impact profit margins. Delays with a data center partner highlight operational risks.

CoreWeave's stock tumbled nearly 9% in premarket trades on Tuesday after the company revised its annual revenue predictions downward due to data center complications, despite robust demand for its AI services. The firm, backed by Nvidia, faces mounting infrastructure costs and escalating AI chip prices that strain profitability.

The company reported delays with a key data center partner, although the affected customer agreed to extend the contract, preserving the deal's total value. Analysts at Barclays noted that this issue highlights operational risks within the young AI infrastructure industry, noting it's a significant reminder of the engineering challenges posed by large-scale AI data centers.

Previously a substantial Ethereum miner, CoreWeave pivoted to the AI sector, renting out Nvidia GPUs and forming partnerships with tech giants like Meta and OpenAI. While its shares have surged approximately 164% since March's IPO, third-quarter reports show a drop in adjusted operating income margin from 21% to 16%, raising concerns about future demand sustainability, according to MoffettNathanson analysts.

(With inputs from agencies.)