CoreWeave (NASDAQ: CRWV) shares plunged Tuesday after a critical analyst note from D.A. Davidson raised concerns about the cloud computing company’s financial fundamentals and outlook.
As of press time, CoreWeave’s stock was trading at $150.49, down 7% on the day. The selloff is particularly notable given that shares had rallied approximately 160% over the past month.
That impressive run-up has been fueled mainly by ongoing enthusiasm around artificial intelligence (AI) firms and CoreWeave’s close relationship with Nvidia (NASDAQ: NVDA).
Nvidia, a major CoreWeave investor, supplies critical hardware for its AI cloud infrastructure and supported its IPO.
Why CRWV stock is crashing
The latest bearish outlook comes after D.A. Davidson reiterated its ‘Underperform’ rating on CoreWeave, maintaining a $36 price target, a 76% drop from the current share price.
In its note, the firm criticized CoreWeave’s financing structure and overall profitability, suggesting that its latest disclosures to analysts raise more red flags than confidence.
“We assume AI enthusiasm may fuel the expansion of this model at least a little longer, which allows us to maintain our $36 price target as we maintain our UNDERPERFORM rating. The risk to the upside is that the company is able to raise a substantial amount of equity capital based on the current share price,” D.A. Davidson stated.
According to D.A. Davidson, CoreWeave relies heavily on debt, with little to no immediate benefit for current equity holders. The analysts pointed to a projected $590 million in additional borrowing costs, warning that these expenses could “literally wipe out any cash they are claiming to generate for shareholders.”
Concerns over CoreWeave’s AI infrastructure
The report also raised doubts about the long-term value of CoreWeave’s AI infrastructure. It flagged the potential depreciation of GPUs like Nvidia’s H200s, citing Amazon AWS’s recent 50% price cut on similar units as a cautionary example.
Adding to investor worries, the analysts suggested that CoreWeave’s illustrative financing models likely understate true interest rates, reaching as high as 12.5% in past quarters.
This could render some of the company’s data center investments economically unviable.
“We continue to believe the entire value of the enterprise is owned by the debt holders,” the analysts said.
While the report acknowledged a potential upside if CoreWeave can raise over $10 billion in equity at current valuations, the overall tone remained skeptical.
D.A. Davidson concluded that the stock’s recent surge is out of step with the company’s underlying financial reality.
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