Earlier this week, CoreWeave, Inc. (CRWV.US) announced a new purchase agreement with an initial value of up to $6.3 billion, building upon an agreement signed with NVIDIA (NVDA.US) on April 10, 2023. This agreement is designed to provide reserved cloud computing capacity for CoreWeave customers, with NVIDIA purchasing remaining idle capacity when customers do not fully utilize their data center capacity. Under the agreement terms, NVIDIA commits to purchasing CoreWeave's unused capacity from 2025 through April 13, 2032, provided that CoreWeave meets delivery and service availability conditions. This arrangement not only helps CoreWeave improve capacity utilization but also provides NVIDIA with additional computing power support in artificial intelligence and high-performance computing.
Wall Street investment firm Raymond James initiated coverage of CoreWeave with an "Outperform" rating and a target price of $130. Raymond James analysts led by Josh Beck stated that this rating and target price reflect "our optimistic view on the persistence of scaling laws, based on inference vector growth and the expansion of inference commercialization, while current market predictions for AI Big Six capital expenditures appear too low compared to our bottom-up expectation building."
The analysts noted that the so-called "AI Big Six" - Amazon (AMZN.US), Google parent Alphabet (GOOGL.US), Meta Platforms (META.US), Microsoft (MSFT.US), CoreWeave, and Oracle (ORCL.US) - will have capital expenditures approaching $900 billion by 2028, significantly higher than the current market estimate of approximately $550 billion.
The analysts indicated that AI networking (such as NVIDIA's NCCL collective communications library and Infiniband's SHARP scalable hierarchical aggregation and reduction protocol), security (dedicated Kubernetes clusters), and the novelty of building AI cloud stacks (reduced relevance of traditional cloud CPU, virtualization, and Ethernet architectures) are all undervalued. The analysts added that they hold a constructive view of the founder-led management team, believing in their ability to address challenges including AI software stack expansion, power, financing, and customer diversification to achieve the expansion target of $20 billion in annual recurring revenue (ARR) by the end of 2027.
Meanwhile, Citizens also upgraded its rating on CoreWeave from "Market Perform" to "Outperform" with a target price of $180. Citizens noted that the total addressable market (TAM) for Graphics Processing Unit as a Service (GPUaaS) is accelerating its growth.
Citizens analysts led by Greg Miller stated: "Combined with Oracle's record $450 billion RPO (remaining performance obligations) and Nebius reporting that Microsoft awarded it approximately $17 billion in contracts (primarily for GPUaaS), we believe hyperscale outsourcing is accelerating. Consequently, despite some obvious long-term flaws in this business model, we believe the GPUaaS business has the potential to grow from the current $3-4 billion to approximately $300 billion."
Citizens analysts noted that since they began covering CoreWeave, they have consistently emphasized that most investors in the stock do not fully understand how the company generates revenue, nor do they adequately comprehend the risks associated with this long-term business model. The analysts stated: "Following the stock's approximately 30% decline after the company's second earnings report and new market expectations for margin pressure in the second half of 2025, we believe investor sensitivity remains high. Nevertheless, we believe the outsourcing wave from hyperscale enterprises will overwhelm potential negative factors in the short term."
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