CoreWeave, a cloud computing company backed by Nvidia that specialises in artificial intelligence infrastructures, received positive coverage from analysts this week despite struggling to gain investor traction following its initial public offering.
The mandatory post-IPO silence period for brokerages ended on Tuesday, allowing Wall Street analysts begin to issue formal coverage of the stock.
Five major firms including Goldman Sachs Morgan Stanley and JP Morgan began coverage, with a largely bullish outlook for the company.
The company is based in Livingston (New Jersey) and offers cloud services powered with cutting-edge Nvidia graphics processors. It operates 32 data centres that house over 250,000 chips.
Analysts have emphasized that CoreWeave is a key player in generative AI, which is a booming field.
Investor interest has remained low.
Analyst optimism and CRWV stock price trajectory
CoreWeave shares have fallen for five sessions in a row, closing Monday at $35.25, down 12.4% on the day and below their IPO price of $40.00.
The stock rose by more than 2% in pre-market hours on Tuesday to $35.42.
Goldman Sachs has set the most optimistic target price at $54, while JP Morgan is the most conservative with $43.
JP Morgan noted that “CoreWeave has a history of being the first hyperscaler to deploy next-gen GPUs. This makes it difficult for others to claim leadership in the industry.”
Goldman Sachs’ neutral rating was justified by the uniqueness of the firm and its lack of direct public competitors.
Red flags are raised by customer concentration and macro-headwinds
Analysts have raised significant concerns despite the enthusiasm.
CoreWeave is dependent on a limited number of clients.
Microsoft is believed to have been one of the two customers that accounted for 77% of revenue in 2023.
Barclays warned that the company’s strong links with Microsoft and OpenAI, cemented by a recent $11.9billion, five-year agreement, could be both a strength as well as a weakness.
Barclays stated that “Close relationship between Microsoft and OpenAI can be both beneficial and harmful… and customer concentration is a risk.”
Morgan Stanley, who rated the stock as “equal-weight”, added that economic uncertainty and weakness on equity markets could keep investors’ appetite in check.
The firm stated that “volatile macro (and equity) backdrop may limit investor’s willingness.”
JP Morgan warned that CoreWeave, a company whose operations are capital-intensive and driven by debt, might not appeal to risk averse investors. The company was described as “a wild ride, lumpy and volatile.”
IPO misses initial targets amid cooling investor confidence
CoreWeave’s IPO, which was initially expected to be a big hit, failed to meet expectations.
The company had planned to price its shares between $47-$55, potentially raising up $2.5 billion.
The company had originally planned to offer 49 million shares but due to a lackluster demand, it was forced to reduce the number of shares to 37.5 millions.
Michael Intrator, CEO of the company, admitted that there were many headwinds on the macro level in an interview with CNBC last month. “We had to scale the transaction or rightsize it for where the buyer interest was.”
The listing was seen by many as a litmus for investor appetite towards AI-related stocks in the face of increased volatility.
Early on, the hope of a more favourable regulation environment under a potential Trump reelection boosted sentiment. However, since then, rising tariffs and macroeconomic uncertainty has weighed heavily.
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