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On Tuesday, DA Davidson reiterated an Underperform rating on CoreWeave (NASDAQ:CRWV) with a $36.00 price target, significantly below the current trading price of $162.10. According to InvestingPro data, the stock is trading near its 52-week high of $166.63 and shows notably high valuation multiples, with an EV/EBITDA ratio of 59.4x. The firm’s analyst Gil Luria provided a critical perspective on the company’s new financing disclosures, expressing skepticism about the projected returns for shareholders during the duration of newly signed contracts. Luria pointed out several concerns regarding the company’s financing structure, the overestimation of residual asset value, and the profitability of the company’s deals.
Luria noted that CoreWeave’s pro forma contract financing structure, disclosed to analysts, lacks upfront equity and offers no returns to current equity holders during the contract. InvestingPro analysis reveals concerning financial metrics, including a low current ratio of 0.44 and substantial total debt of $11.9 billion, supporting these financing concerns. The company assumes a 15% equity, but Luria emphasized that CoreWeave does not have equity capital to invest and is instead relying on other forms of non-project debt. This would require servicing an additional $590 million, which could eliminate any cash claimed to be generated for shareholders.
The residual value of CoreWeave’s assets was also called into question. Luria expressed doubts about the company’s suggestion that revenue from residual assets in year five and beyond would be 75% of the revenue from the first four years of the original contract. Citing a recent 50% price cut by Amazon (NASDAQ:AMZN) AWS for similar hardware, Luria argued that the revenue per GPU installed today is likely to be less than 25% of its current value after four years.
Furthermore, Luria highlighted that the illustrative interest rate used in the disclosures indicates that all previous deals are likely unprofitable. With the actual blended interest rate reported in Q1 2025 being 12.5%, compared to the illustrative 9%, the analyst suggested that the described breakeven economics would result in losses for current and previous data centers.
Regarding the total value to shareholders, Luria estimated that with approximately $30 billion of assets deployed by the end of 2025, the residual value four years from now would be less than $7.5 billion, or under $5 per share when discounted. The analyst concluded that while AI enthusiasm might fuel expansion, it would require CoreWeave to raise more than $10 billion in equity capital at the current share price to justify the next two years of projects, which he sees as the only significant upside risk to his analysis. InvestingPro analysis indicates the stock is currently overvalued, with additional insights available in the comprehensive Pro Research Report, including 20 key ProTips and detailed financial health metrics that could help investors make more informed decisions about this high-growth AI infrastructure company.
In other recent news, Applied Blockchain secured a significant 15-year lease agreement with CoreWeave for two buildings in Ellendale, ND, projected to generate approximately $7 billion in revenue. Despite this positive development, Compass Point downgraded Applied Blockchain from Buy to Neutral, citing potential risks related to project financing and equity involvement. Meanwhile, CoreWeave achieved record-breaking performance in machine learning benchmarks using NVIDIA (NASDAQ:NVDA)’s Blackwell GPUs, highlighting its robust AI infrastructure capabilities. CoreWeave also appointed Ernie Rogers as Chief Architect of Strategic Financing, aiming to bolster its growth trajectory with his expertise in financial strategy. Barclays (LON:BARC) maintained an Equalweight rating on CoreWeave, following a 250MW agreement with Applied Digital, which increases CoreWeave’s total contracted power to nearly 2GW. This expansion is part of CoreWeave’s strategic efforts to meet the rising demand for AI applications. These developments reflect ongoing strategic moves by both Applied Blockchain and CoreWeave in their respective fields.
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