Earnings Ignite 'AI Cloud': CoreWeave and Nebius Surge

Quarterly reports from two AI cloud computing companies far exceeded expectations, driving a collective rebound in the new cloud computing sector and reigniting market confidence in the demand for AI infrastructure.

On Wednesday, August 12, CoreWeave closed up 19% at $107.73, while Nebius soared 34% in a single day to $247.05, both hitting recent highs.

Both companies' second-quarter results significantly surpassed Wall Street expectations. CoreWeave's sales backlog climbed to $104 billion, while Nebius's revenue increased by 454% year-over-year.

The rally quickly spread across the entire AI infrastructure sector: chipmaker Micron Technology rose 4.9%, cloud computing peer IREN jumped 9.9%, and the S&P 500 Information Technology Sector led gains, pushing the broader market slightly higher by 0.3%.

(The rally in the AI sector was led by computing power infrastructure, storage, and semiconductors)

The market has begun to reassess the previously pervasive concerns about overbuilding. At least in the short term, demand for AI computing power has proven to be real, supported by contracts and backed by prepayments, rather than remaining merely hypothetical.

Short Covering Ignites the Rally

Structural factors contributed to the outbreak of this rally.

According to position data from over 700 fund clients under Hazeltree, CoreWeave, Nebius, and Super Micro Computer consistently ranked among the top ten most shorted stocks throughout July. The highly concentrated short positions became fuel for the price surge following the impressive earnings releases.

Nebius's short interest ratio of approximately 24% caused its stock price to jump from $193 to $247 in a single trading day. CoreWeave surged significantly in after-hours trading on Tuesday, triggering a chain reaction of buying across the new cloud computing sector.

This contrasts sharply with the market backdrop in July. At that time, U.S. chip stocks fell about 20% for the month, and the Korea Composite Stock Price Index dropped 22%, both marking their worst monthly performance since 2008. The market was widely concerned about overbuilding and inflated valuations among AI cloud computing companies.

Backlog Confirms Strong Demand

As noted by Wallstreetcn, CoreWeave's financial data was particularly impressive in terms of scale.

The company's second-quarter revenue reached $2.58 billion, slightly exceeding the market expectation of $2.56 billion, marking the fifth consecutive quarter of record-high revenue; loss per share was $1.14, better than the expected $1.41.

Data on orders was even more compelling: sales backlog for the quarter rose to $104 billion, nearly doubling from last November; more notably, new customer commitments for the current quarter, not yet included in the second-quarter report, had already reached $25 billion.

The company simultaneously raised its full-year revenue guidance to a range of $12.4 billion to $13.2 billion, up from the previous range of $12.0 billion to $13.0 billion. Management also revealed that the annualized recurring revenue from its managed inference business rapidly exceeded $100 million within months of launch, starting from about $1 million, with a year-end target of $250 million.

Nebius also performed exceptionally well. The company's second-quarter revenue was $582.3 million, a 454% year-over-year increase; adjusted EBITDA reached $236 million, with a profit margin of 41%.

During the quarter, it completed four major deals with an average size of over $1 billion, with customer prepayments covering 50% to 60% of capital expenditures; the transaction price in one computing power auction was 15% higher than the previous highest Blackwell quote.

Analysts at Raymond James reiterated their $125 price target after the report release, stating:

Investors have underestimated CoreWeave's potential to develop into a leading hyperscale cloud service provider.

Bull-Bear Divide: The Battle Over Capital Returns

The bulls' logic is that demand continues to outpace supply, strengthening pricing power.

Reportedly, NVIDIA is leading an infrastructure financing plan worth approximately $500 billion, primarily targeting specialized AI cloud service providers. Piper Sandler raised CoreWeave's price target to $153, listing it as a top pick; Citizens maintained its $180 price target.

Ayako Yoshioka, Senior Investment Strategist at Wealth Enhancement, stated:

At least in the near term, demand is comprehensively overwhelming supply.

CoreWeave Co-founder and Chief Development Officer Brannin McBee also pointed out that the company recently signed a batch of contracts for NVIDIA A100 chips released in 2020 at close to full price, with terms extending to 2029, indicating that older-generation AI chips still retain strong value retention. McBee said:

Driven by both inference and engineering demands, the usage cycle of older-generation GPUs is extending, a phenomenon we are observing across our entire fleet.

Bears, however, remain reserved. DA Davidson maintained a neutral rating with a $100 price target, believing that CoreWeave's cost of capital of approximately 9% is higher than its implied return rate of about 4%, meaning that "every data center built continues to destroy value."

Bernstein maintained an underperform rating, pointing out that capital expenditure growth is outpacing revenue growth. Angelo Zino, Senior Vice President at CFRA Research, also warned:

We are building such large-scale computing power that the potential mismatch between supply and demand still exists. Once the bubble bursts earlier than the market expects, the new cloud computing companies will be the hardest hit.

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