Bank of America (BAC) analyst Brad Sills downgraded CoreWeave (CRWV) stock to Neutral from his previous Buy rating, citing the AI cloud company’s high valuation.
“Following Q1 results, the stock has run up 145%,” Sills wrote, adding that he believes “much of the near-term upside has been priced in.”
Sills noted that CoreWeave is trading at 27 times its 2027 earnings, more than previously. He also noted CoreWeave’s significant debt.
“We forecast $21 billion of negative FCF [free cash flow] through CY27, driven by high capex ($46.1 billion through CY27),” Sills wrote. “Historically, CoreWeave has funded 85% of capex with debt.”
“Therefore, it is critical that the company have access to reasonably priced debt,” he continued. “In the recent debt raise, the company raised $2 billion of debt at 9.3% interest rate, down from 11% in CY24. However, this remains a small % of the total incremental debt required from here, raising some questions, in our view.”
Despite the downgrade, Sills raised his price outlook on the stock to $185 from $76. CoreWeave stock rose 4.6% on Monday.
CoreWeave is an Nvidia-backed (NVDA) firm that holds one of the largest pools of the chipmaker’s GPUs. It reported its first quarterly earnings results as a public company in May, featuring soaring revenue and a bullish revenue outlook for the year, on a $4 billion deal with ChatGPT maker OpenAI.
Still, some analysts have questioned what they believe is a risky business model.
