Fireworks at CoreWeave Despite Analysts' Concerns

CoreWeave's stock experienced a significant surge of over 8% on Tuesday, bringing the company's upward trend since the IPO to an impressive 340%. This occurred despite a downgrade by Bank of America analyst Brad Sills, who revised the stock from 'Buy' to 'Neutral' due to its high valuation. Nevertheless, he raised his price target to an industry-high of $185. The analyst noted that CoreWeave is trading at 27 times the projected earnings for 2027. He also emphasized the company's substantial debt, as 85% of its capital expenditures are financed through debt. The planned expenditures of up to $23 billion in 2025 surprised Wall Street analysts, causing a price drop in May following the first quarterly report as a publicly-traded company. Despite the downgrade, Sills still sees strong demand in CoreWeave's AI infrastructure market. He forecasts that capital expenditures for AI investments will increase by 4% to $206 billion by 2027, which is significantly lower than the 65% growth in 2025. The company, known as one of the largest holders of Nvidia's graphics processors, has increased its market value by over $64 billion since March. CoreWeave uses its debt to purchase more Nvidia chips, which are rented to industry giants like Microsoft and Meta, whose own GPU capacities do not suffice for their AI ambitions. Nonetheless, some analysts remain skeptical. Gil Luria from DA Davidson believes that CoreWeave's cash flows are used exclusively for debt repayment, thus not benefiting shareholders. In contrast, Brent Thill from Jefferies still considers CoreWeave one of the top investment opportunities in the AI sector and has confidence in the resilience of its infrastructure.