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Investing.com - HSBC has initiated coverage on CoreWeave (NASDAQ:CRWV), currently trading at $143.04 with a market capitalization of $68.7 billion, with a Reduce rating and a price target of $32.00, citing concerns about the company’s GPU cloud business model. According to InvestingPro analysis, the stock appears to be trading above its Fair Value, with multiple indicators showing high valuation multiples across various metrics.
The bank’s analysis points to increasing commoditization in the GPU cloud market, with lower barriers to entry compared to general purpose cloud services. HSBC notes that CoreWeave’s asset turnover ratio of approximately 32% in Q1 2025 lags significantly behind hyperscalers like Amazon (NASDAQ:AMZN) AWS at 76%. The company’s financial metrics support these concerns, with InvestingPro data showing a negative return on equity of -121% and negative free cash flow of -$7.6 billion in the last twelve months.
Customer concentration represents another risk factor, with Microsoft (NASDAQ:MSFT) and OpenAI accounting for more than 72% of CoreWeave’s revenue and most of its backlog in Q1 2025. HSBC suggests the company faces challenges in diversifying its customer base and developing more value-added services.
HSBC projects non-GAAP EBITDA margins for 2025-2030 that are more than 10 percentage points below consensus estimates. The bank expects major costs such as data center rent (16.4% of Q1 2025 revenue) and power (6.1%) to remain elevated, with recent data center deals implying significant increases in rental costs.
The research firm also expressed concerns about CoreWeave’s financial position, forecasting that net debt-to-equity could approach 10x in coming quarters with risk of a covenant breach in Q4 2025. HSBC expects maintenance capital expenditures to increase to approximately 35% of revenue from 2030 as GPUs approach end-of-life, negatively impacting free cash flow.
In other recent news, CoreWeave announced plans to invest up to $6 billion in a new artificial intelligence data center in Lancaster, Pennsylvania. The facility will initially operate at 100 megawatts, with the potential to expand to 300 megawatts. This investment is expected to create approximately 600 construction jobs and up to 175 full-time positions. Additionally, CoreWeave’s W&B Weave product is now available in the AI Agents and Tools category of AWS Marketplace, which could streamline AI agent development for various industries. Meanwhile, Needham has downgraded CoreWeave’s stock from Buy to Hold, citing valuation concerns despite the strategic benefits of its CORZ acquisition. The acquisition is anticipated to unlock 150-200MW of additional IT capacity and lower operating expenses. Citizens JMP and H.C. Wainwright have maintained their Market Perform and Neutral ratings on CoreWeave, respectively, reflecting on its strategic positioning and technological leadership. CoreWeave’s recent developments highlight its focus on expanding its infrastructure and strengthening its market presence in AI computing.
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