Shares of CoreWeave (CRWV 5.44%) rocketed 169.5% in May, according to data from S&P Global Market Intelligence.

CoreWeave had a busy month, not only recovering from April's "Liberation Day" along with the rest of the sector, but also holding its first earnings report since its March 28 initial public offering (IPO). Additionally, key customer and supplier Nvidia (NVDA -0.06%) disclosed that it had increased its investment in the company.

CoreWeave recovers from IPO skepticism

Virtually all technology stocks and artificial intelligence (AI) stocks recovered in a big way after May 12, when the U.S. and China ratcheted down their mutual tariffs for 90 days in order to let trade talks proceed. The sky-high China tariffs had been at the heart of the worries over President Trump's tariff war, which had especially weighed on the semiconductor and AI sectors.

Shortly after the rollback of China tariffs, CoreWeave also held its first-ever earnings release. In that release, CoreWeave beat revenue expectations handily. And while earnings per share missed by a lot, that was caused by one-time stock compensation costs associated with the IPO. Moreover, CoreWeave raised its revenue guidance for the year well above analyst estimates, although it also increased its outlook for capital expenditures.

While investors had something of a mixed reaction to earnings, most Wall Street analysts raised their price targets afterward. But just days later, CoreWeave saw a massive spike in its stock after it was revealed that AI chip darling Nvidia had increased its investment in the company. That was followed by even larger analyst price target increases the following week.

Image source: Getty Images.

CoreWeave may be getting overpriced at this level

Not only did CoreWeave have a monster month of May, but the stock has also surged to begin June, following news of a 15-year, $7 billion data center expansion agreement with data center operator Applied Digital (APLD 29.27%).

Given the massive spike in the stock price, there's a degree of meme stock momentum right now in CoreWeave. So investors should be careful with the stock at this valuation, which currently sits at about 15 times this year's revenue outlook.

That's a high price for a stock with high investment needs and some substantial risks. One concern is that CoreWeave has to invest substantial amounts in fixed assets ahead of receiving revenues from its contracts. However, it appears investors are encouraged by the more aggressive growth outlook and willing to look past upfront investment needs in fixed costs that will probably require CoreWeave to raise more capital.

Another risk that concerns me is the company's circular relationship with Nvidia, which is both a customer and, obviously, a key supplier. While AI demand and demand for Nvidia chips appears quite strong for now, should either demand ever slow down, CoreWeave could run into problems.