CoreWeave's stronger than expected third-quarter results and increased annual guidance have brought renewed attention to the AI cloud sector. The neocloud provider raised its guidance, indicating it will deliver over $13 billion in revenues this year, with improved margins. Lorne Steinberg, co-president of Lorne Steinberg Wealth Management, said the results give investors comfort that the company's revenues are on track. He noted CoreWeave has indicated it will only need to raise about $5 billion through 2027 to meet its buildout capacity, which should be easily achievable.
"So it's a huge sigh of relief to investors and takes the pressure off in the near term," Steinberg said in an interview. He said CoreWeave's guidance that it is massively oversubscribed on capacity makes the whole sector look stable with strong growth for the next couple of years. The biggest challenge for CoreWeave will be delivering data centres on time to avoid penalties or cancellations, but there has been zero indication of problems thus far, according to Steinberg. He added that public policy, including midterm elections in the United States, may have some impact on the industry as a whole in the longer term.
Steinberg also highlighted opportunities in other technology stocks, both Canadian and American. He pointed to Constellation Software as a spectacular growth story through acquisition, delivering 15 per cent annualized revenue growth. He said this remains a great opportunity to get into one of Canada's few real growth stories, and a company in a pretty unique position. He also discussed Open Text, which he called the cheapest company in his portfolio, trading at about six times earnings. He said the new management team has been clear about creating value for shareholders through significant share buybacks and divesting non-performing assets.
On the U.S. side, Steinberg identified Adobe as one of the cheapest stocks he owns, trading at 10 times free cash flow. He said every quarter is another 10 per cent-plus revenue and earnings grower for Adobe, and at that valuation the company is buying back significant stock. He said he sees the stock worth double the current share price. He also discussed Alphabet, which he said is trading at its cheapest valuation in many years at 15 times earnings, with revenues growing at 25 per cent. "This is just an incredible opportune entry opportunity to get into a company of this quality," Steinberg said.
Turning to opportunities tied to Canada's major project buildout, Steinberg highlighted Finning and Toromont, the largest Caterpillar dealers in Canada. He said these companies already have a record backlog and will benefit from data centre buildout and infrastructure projects. "To build out all of these projects, you're going to need a lot of equipment, and you have nowhere else to go in Canada but Finning and Toromont," he said. He noted Toromont has a division that caters specifically to data centres by selling power supplies and enclosures. Steinberg suggested Canada could benefit if there is pushback against data centre construction in some U.S. communities, as data centre approvals are already happening in Canada.