CoreWeave Stock Falls After DA Davidson Flags Massive Downside Risk

Shares of CoreWeave Inc. (NASDAQ:CRWV) are trading lower on Tuesday after DA Davidson reiterated its Underperform rating and criticized the company's recently disclosed financing structure.

What To Know: DA Davidson analyst Gil Luria maintained an Underperform rating and price target of $36 on shares of AI hyperscaler CoreWeave.

“CoreWeave disclosed a pro forma contract financing structure example to analysts earlier today, trying to indicate shareholders will get some returns during the duration of the contracts being signed. We believe the disclosure (even if accepted at face value) very clearly illustrates the exact opposite point,” Luria said in a note to clients.

The DA Davidson analyst noted that the new disclosure raises more red flags than it resolves, calling into question the value being generated for equity holders.

According to Luria, CoreWeave’s financing example assumes a 15% equity component on project contracts, but in reality the company lacks upfront equity capital and is heavily reliant on high-cost debt, including vendor financing, lines of credit and unsecured notes at rates of up to 9.5%. The analyst estimated that servicing this debt could erase any near-term cash returns for shareholders.

DA Davidson also questioned the company's assumptions about the residual value of its assets, stating that the expected 75% revenue continuation beyond year four is unrealistic. With GPU prices like those for the H200 already being slashed by companies like Amazon Web Services, the analyst believes those assets will likely be worth less than 25% of their original value after four years.

Furthermore, Luria pointed out that CoreWeave’s previous data center deals may already be underwater. The company’s first-quarter filings show a 12.5% blended interest rate, significantly higher than the 9% used in the example scenario. Based on those figures, the DA Davidson analyst believes earlier deals were likely unprofitable.

“This leaves only the residual value of the assets at the end of the contact terms. With ~$30bn of assets deployed by the end of the year, we believe that indicates <$7.5bn four years from now as the value to shareholders, discounted 4 years, or less than $5/share for equity holders,” the analyst said.

Luria acknowledged that there is upside risk, noting that if CoreWeave is able to raise more than $10 billion in equity at current valuations, it could justify the next two years of projects.

Despite the potential for continued momentum from AI market enthusiasm, the firm sees the majority of the company's enterprise value as belonging to debt holders, not shareholders. DA Davidson’s 12-month price target of $36 is well below current share prices of approximately $155.

CRWV Price Action: CoreWeave shares are up approximately 147% over the past month. The stock was down 4.21% at $155.28 at the time of publication Tuesday, according to Benzinga Pro.

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