Alexandra Sternlicht
6 min read
In This Article:
On Monday, data center company Applied Digital announced two 15-year lease agreements with CoreWeave, an AI infrastructure company. The news sent CoreWeave’s stock soaring by more than 40% over the next few days.
Such double digit percentage gains have become par for the course during CoreWeave’s brief life as a publicly traded stock. On May 27, the stock jumped over 20% after the company announced $2 billion in senior notes, and on May 16 it popped 22% on news that Nvidia infused it with a $900 million investment. The stock tumbled 17% on Thursday, but was back up 4% in midday trading on Friday. Even for a high beta stock, the overall trendline is overwhelmingly positive: Coreweave’s stock is up a whopping 250% since its March IPO, with the company’s market cap now roughly $70 billion.
This has baffled many Wall Street analysts who believe the company is in a precarious financial situation despite the explosive revenue growth logged on its top line. “Nothing from a fundamental perspective would support the magnitude of change that we’ve seen in the stock since the IPO,” says Nick Del Deo, a managing director at MoffettNathanson who covers CoreWeave and other tech companies.
Of the 19 analysts who cover the company, just three had a “buy” rating on the stock and four others had positive opinions while the consensus rating is firmly “hold” as of June 6. The average price target among all analysts who cover the stock is $72.61, well below the $145 level Coreweave was trading at on Friday and the 52-week high of $166.63.
Some analysts believe the demand for the stock is being driven by retail investors who, on average, engage in contrarian and momentum-driven trading and may be eager to invest in CoreWeave due to its multi-billion dollar contracts with Nvidia, OpenAI, Microsoft and other major companies propelling AI. It’s worth noting that institutional investors like Coatue Management and Jane Street do hold CoreWeave positions worth over $1 billion each.
Big announcements like the Applied Digital leases are one factor driving up shares of the stock. An even more fundamental dynamic is that investors are looking for ways to capitalize on the success of OpenAI, which is privately held, and see CoreWeave as one of the few vehicles for exposure in the public markets. OpenAI owns a percentage of CoreWeave and signed a multi-billion deal as its cloud infrastructure provider until April 2029. Plus, CoreWeave is a preferred partner of Nvidia, currently the most valuable company in the world by market cap, which is also an investor in CoreWeave.
