Shares of CoreWeave Inc. have been on a tear this week, with investors feeling more confident in the cloud-computing company following upbeat developments involving other artificial-intelligence players. But can the rally last?
MoffettNathanson analyst Nick Del Deo thinks investors should tread carefully, even as reports of strong AI demand in the tech sector have sent CoreWeave shares soaring 34% in the last four trading sessions. Yes, AI demand looks strong — but CoreWeave is only one of a number of companies looking to satisfy this demand, and Del Deo doesn’t think the company’s services will prove to be very differentiated.
There’s certainly been a lot of good news for CoreWeave bulls in recent days, helping the stock rebound from a slump brought on by its most recent earnings report and the expiration of its post-IPO lock-up period.
Last Friday, the Information reported that OpenAI had revised its cash burn upward to $115 billion through the end of 2029, $80 billion higher than previously projected, in part due to higher computing costs. That suggests cloud-computing companies stand to benefit from higher demand. And on Monday, Microsoft Corp. announced a $17.4 billion infrastructure agreement with the neocloud company Nebius Group NV, signaling that big cloud-services providers are increasingly looking to expand their capacity externally instead of increasing capital expenditures to build their own data centers.
CoreWeave also gave optimistic comments on Wednesday during the Goldman Sachs Communacopia + Technology Conference, with Chief Development Officer Brannin McBee saying that the company is seeing “yet another inflection in demand” due to increased inference demand. “Clients are coming to us saying that they need this infrastructure,” McBee noted.
Additionally, Oracle Corp.’s blowout earnings reporton Tuesday — with the company reporting four multibillion-dollar contracts in its pipeline — is helping fuel CoreWeave’s stock rise today. In July, Oracle — which was havingits own impressive stock rally Wednsday— signed a $30 billion deal to provide data-center capacity to OpenAI. CoreWeave’s stock has jumped 20% on Wednesday alone.
Del Deo called the demand backdrop “favorable,” but he believes “it’s inappropriate to think of CoreWeave’s infrastructure capabilities as singularly unique; they can be matched.”
Microsoft’s deal with Nebius and Oracle’s partnerships with OpenAI and others show that competitors are also providing state-of-the-art cloud-computing solutions. Customers could also be looking to diversify their cloud-computing vendors for better cost and operational risk management.
“The dynamics that we’re observing suggest that the returns on delivering AI infrastructure to large customers are likely to compress due to competitive forces,” Del Deo added.
In a supply-constrained market, cloud-computing vendors like CoreWeave have the advantage, as CoreWeave quite literally can’t bring capacity online fast enough to satisfy demand. While that gives the company favorable pricing dynamics in the short term, Del Deo believes increasing competition among neoclouds will bring down prices.
OpenAI’s disproportionate contribution to demand also poses a risk for CoreWeave, according to Del Deo, as its large cloud-computing investments gives it “quasi-monopsony buying power.” In the future, OpenAI could exert more influence on the prices it pays cloud-computing vendors, creating downward pricing pressure.
That means the key to CoreWeave’s success going forward will depend on the company’s ability to create a differentiated tech stack, not just secular tailwinds due to AI.
MoffettNathanson gives CoreWeave a neutral rating and a price target of $65.
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