DA Davidson sets CoreWeave stock Neutral with $47 target

On Monday, DA Davidson began coverage of CoreWeave (OTC:CRVW), a player in the emerging neocloud sector, with a Neutral rating and a $47 price target. According to InvestingPro data, the company reported revenue of $7.88 million in the last twelve months, with a gross profit margin of 58.53%. CoreWeave, recognized as the largest in the neocloud category, has quickly scaled its operations to report $1.9 billion in GPU rental revenue, with projections to hit $8 billion this year.

The company has strategically positioned itself as a highly leveraged pure play on artificial intelligence. InvestingPro analysis reveals concerning financial health metrics, with short-term obligations exceeding liquid assets and a current ratio of just 0.07. CoreWeave’s rapid growth was fueled by securing significant financial resources, including $12 billion in loans to expand its data center capacity. This financial leverage has been instrumental in purchasing 250,000 GPUs from NVIDIA (NASDAQ:NVDA), amounting to approximately $10 billion, making CoreWeave a noteworthy customer, accounting for 6-7% of NVIDIA’s business.

CoreWeave’s funding strategy included a $100 million investment from NVIDIA and a $320 million contract to buy capacity from the same company. Additionally, CoreWeave entered into a multi-year agreement with Microsoft (NASDAQ:MSFT), which enabled the company to raise $1.6 billion in equity and $12.9 billion in debt commitments. The debt carries interest rates mostly in the range of 10-14%, with some as high as 17%. InvestingPro data shows the company’s total debt to total capital ratio stands at 67%, reflecting its highly leveraged position.

The company’s relationship with Microsoft and NVIDIA is of particular interest. CoreWeave is seen as a channel for Microsoft to offload less desirable workloads and for NVIDIA to convert a small investment into a significant customer relationship.

As CoreWeave navigates the competitive landscape of the neocloud market, DA Davidson’s initiation of coverage reflects an assessment of the company’s current position and its potential in the rapidly evolving field of AI and cloud computing. The Neutral rating and $47 price target suggest a cautious outlook on CoreWeave’s stock performance in the near term.

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