CoreWeave's stock crashed last week amid concerns about rising interest rates and its high debt load. Nvidia has invested billions in CoreWeave and counts it as a big customer, so the problems could weigh on Nvidia too. Its valuation looks cheap only if future growth expectations hold.
CoreWeave's stock crashed last week amid concerns of rising interest rates and its high debt load. The company is a big customer of Nvidia, and Nvidia has also invested billions in it, so Nvidia has a lot at stake in how the neocloud company does.
Both stocks have struggled lately, but Nvidia's decline is more modest. Nvidia has declined by around 2% over the past month, while CoreWeave is down well over 20%.
Nvidia looks cheap only on future expectations
Nvidia has a market cap of around $5.2 trillion, making it the most highly valued stock on U.S. markets. Even so, many growth investors still consider it cheap because of its earnings expectations.
Nvidia trades at a forward price-to-earnings multiple of 25, based on how profitable analysts expect the business to be over the coming year. Its price-to-earnings-growth multiple stands at approximately 0.48, while the cutoff for a cheap stock on that measure is 1.0.
How CoreWeave could drag on Nvidia
The risk comes if anything shakes confidence in Nvidia's future growth. CoreWeave is a key customer that also rents out compute power to other businesses. If its debt load and interest costs cause problems, investors may grow more concerned about the prospects of smaller, riskier businesses without CoreWeave's close relationship with Nvidia.
Other pressures could add to that. More tech companies are making their own chips and turning to other chipmakers to cut costs, and rising interest rates may lead some companies to pull back on capital expenditures.
Because Nvidia's valuation rests on expected growth, the stock could be due for a steep correction if that outlook fails to pan out.
Source: Motley Fool
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