‘Avoid This Ticking Bomb,’ Says Top Investor About CoreWeave Stock

The AI craze has lifted many a boat, some to incredible heights. CoreWeave (NASDAQ:CRWV) is the latest company to join the throng, and it has risen over 300% in the months since its IPO in late March.

Initially founded primarily as a crypto miner, the company shifted to renting out its GPU hardware. This turned out to be quite the goldmine once the AI revolution took off in earnest, and the company has grown by leaps and bounds over the past few years.

CoreWeave counts major hyperscalers such as Microsoft among its top customers, while the undisputed data center champ Nvidia has a sizeable investment stake in the company as well.

Has CoreWeave found a scintillating business model that investors can ride for years to come? Not according to top investor James Foord, who spots some major liabilities on the horizon.

“CoreWeave, Inc.’s rapid growth is fueled by heavy debt and opaque financing, raising serious concerns about long-term sustainability and risk for retail investors,” asserts the 5-star investor, who is among the top 3% of TipRanks’ stock pros.

While acknowledging CRWV’s vast growth, Foord believes underneath the surface things are not so rosy. For one thing, the company is carrying massive amounts of debt, and Foord estimates that its Debt-to-Equity ratio could be as high as 12. Servicing this debt does not come cheap, of course, the investor adds.

Not only is the financial arrangement suspect, explains Foord, but the business model of renting out AI hardware is in trouble. The investor points out that CoreWeave is in “a race against time,” as its hardware GPUs are rapidly becoming outdated.

“Their main asset, the GPU, (is) depreciating by the minute, especially as the AI sales cycle just gets faster,” adds Foord.

The investor also notes that rental prices are sinking swiftly – hourly rates for the H100 have fallen from a peek of $8 in late 2023 to $1.47 today – further exacerbating this hardware-related risk.

Increased competition, a potential slowdown in AI spending, and overreliance on a small cadre of customers further expose CoreWeave to potential losses going forward, notes Foord.

“While insiders have already made billions of dollars, I fear retail investors could be left holding the bag if things turn south,” concludes Foord, who rates CRWV a Sell. (To watch Foord’s track record, click here)

Wall Street seems to think otherwise, though the surging growth over the past two months has gone far beyond what even the most optimistic bulls had been expecting. A consensus Moderate Buy – with 7 Buys and 5 Holds – CRWV’s 12-month average price target of $47.42 has a downside of ~70% from current levels. (See CRWV stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.