CoreWeave Plunges 11% on Meta Cloud Plans: Buy the Dip?

On July 1, reports emerged that Meta Platforms is forming a new business unit, internally called "Meta Compute," to sell its excess AI cloud capacity to third-party customers. Meta will offer both raw GPU computing power and remote access to its infrastructure, allowing companies to run their own AI models.

This news came as a surprise because Meta had just agreed to pay CoreWeave $21 billion through 2032 for neocloud services in April. Meta also signed a similar multi-billion dollar deal with another neocloud provider, Nebius. The agreements prohibit Meta from reselling any of that cloud computing power, so Meta can only sell excess capacity from its own first-party data centers.

Meta plans to invest up to $145 billion this year in expanding its own AI infrastructure. As it builds more data centers, some servers will remain idle until fully utilized. To avoid wasting cash and energy on underutilized servers, Meta wants to rent them out to third parties.

Shares of CoreWeave dropped nearly 11% since the news broke, as investors worried about Meta becoming a direct competitor. CoreWeave's other major customers, like Jane Street and IBM, could potentially follow Meta's playbook if they expand their own cloud infrastructure.

On the bright side, CoreWeave's largest customer, Microsoft, is unlikely to do the same because it's already one of the world's biggest cloud infrastructure companies. Instead, CoreWeave will continue to serve as an "overflow tank" for Microsoft's cloud services.

Meta's move signals that even big tech companies are looking to monetize their AI infrastructure, potentially increasing competition for independent neocloud providers like CoreWeave and Nebius. If other large customers follow Meta's lead, CoreWeave could face pricing pressure and reduced demand.

However, the AI cloud market is expanding rapidly, and many companies may prefer independent providers over tying themselves to a social media giant like Meta. CoreWeave's specialized services and neutrality could remain attractive.

From 2025 to 2028, analysts expect CoreWeave's revenue to surge from $5.1 billion to $40.3 billion, with adjusted EBITDA growing from $3.1 billion to $25.7 billion. At an enterprise value of $91.2 billion, the stock trades at just 7 times this year's revenue and 13 times adjusted EBITDA, which looks reasonable for such high growth.

Meta's announcement is alarming but doesn't break the bullish thesis for CoreWeave. The pullback could be a buying opportunity for investors who believe in the long-term growth of AI cloud computing.