The sharp drop in stock prices is still being strengthened! Bank of America maintains CoreWeave (CRWV.US) “buy”: don't be deterred by financing concerns, there is still a backlog of at least $129 billion

The Zhitong Finance App learned that after concerns about AI infrastructure financing caused CoreWeave's stock price to drop by a cumulative total of about 18% for two consecutive trading days, Bank of America reiterated its “buy” rating on CoreWeave on Thursday and raised its revenue forecast. Combined with market recovery, CoreWeave rebounded nearly 6% to $69.69 on Thursday.

Bank of America analyst Tal Liani said in the report that the decline in CoreWeave's stock price is likely to reflect market concerns about financing barriers for AI infrastructure participants. However, Bank of America kept its target price of $140 unchanged. The target price is based on 26 times CoreWeave's projected operating profit in 2027, which is higher than the 14-19 times valuation range adopted by Bank of America for similar cloud data center companies, because CoreWeave expects to grow faster.

Bank of America also raised its financial forecast across the board: CoreWeave's 2027 revenue is expected to increase by 105% and 2028 by 63%, higher than the previous forecast of 102% and 58%; corresponding to 2027 revenue of US$26.5 billion and 2028 revenue of US$43.3 billion, higher than the previous estimates of US$26 billion and US$41 billion, respectively; and the 2026 revenue forecast is US$12.9 billion.

At the operational level, Bank of America expects CoreWeave to add 1.4 to 1.5 gigawatts of active power capacity each year over the next two years. As the company begins using Nvidia (NVDA.US) next-generation Vera Rubin chips, revenue per megawatt is expected to rise from about $10 million now to around $14 million by the end of 2028.

But expansion also means higher capital expenditure. Bank of America raised CoreWeave's 2027 and 2028 spending forecasts to $47.4 billion and $49.8 billion, respectively, compared to 43.8 billion US dollars and 44.7 billion US dollars previously. The bank estimates that CoreWeave's cash expenditure this year will be about US$23.8 billion more than its cash revenue, and about US$24.8 billion more in 2027; by the end of 2026, the size of the company's debt will be about three times that of shareholders' equity.

Bank of America's optimism about CoreWeave comes in part from its contract reserves. CoreWeave has signed a contract backlog of at least $129 billion. Most customers are large technology companies with strong credit ratings, and companies usually sign five-year agreements, which helps them borrow at a lower cost. Among them, Meta (META.US) contributed $35 billion, and OpenAI contributed $22.4 billion. Customer concentration is also changing: Microsoft (MSFT.US) accounted for 66% of the contract backlog at the end of 2024, and has dropped to less than 33% a year later.

CoreWeave bonds are in trouble

Despite this, Bank of America's positive views have not dispelled market concerns about AI leveraged financing. On Thursday, CoreWeave bonds fell to the level of non-performing debt. Since last week, US chipmakers have evaporated nearly $2 trillion in market capitalization, and AI financing activities have slowed down. The latest US inflation data was higher than expected, prompting investors to turn to US Treasury bonds for safe haven.

Many market participants see CoreWeave as a weather vane for the financing pressure of highly leveraged technology companies. Sam Stovall, chief investment strategist at CFRA Research, said that CoreWeave is a proxy indicator for other highly leveraged companies, and investors are concerned that these highly leveraged technology companies may cause debt crises. Steve Sosnick, chief market analyst at Interactive Brokers, pointed out that the market is questioning the speed, efficiency, and profitability of rapid AI construction; if the pace of data center construction becomes more restrained, hardware vendors will spend less because customers will no longer compete to buy equipment and not hesitate to pay.

David Morrison, senior market analyst at Trade Nation, pointed out that since AI infrastructure is burdened with huge debts, rising borrowing costs are far from ideal. The market is concerned that these costs will erode future returns, and the likely timing and scale of the returns are still unclear; at the same time, there are also concerns that production capacity is overspent and may eventually never be used.

Rong Ren Goh, portfolio manager at Eastspring Investments, believes that the sell-off reflects investors' cautious attitude towards the more vulnerable parts of the AI ecosystem. As tech business leaders advocate slowing down cutting-edge model development, the market is increasingly questioning the sustainability and trajectory of computing power demand. These concerns have been exacerbated by higher financing costs, raising the investment threshold for capital-intensive AI infrastructure projects.

However, Parth Talsania, CEO of Equisights Research, believes that this is an “interest rate event clothed in the cloak of credit”, fueled by higher-than-expected CPI data, and CoreWeave is only the most leveraged and longest term expression among them; this is not the first evidence that AI demand has begun to collapse. He added that companies that take payments in cash are relatively isolated, and the risk is concentrated on those who borrow money to buy assets, and the residual value of assets depends on the chip cycle that they cannot control.

Brett Kenwell, an American investment analyst at eToro, said that the sharp rise in bond yields certainly made investors uneasy, but this did not mean that CoreWeave would inevitably go bankrupt; it forced investors to re-evaluate the economics of the business and take a closer look at its peers.