By Nate Wolf

CoreWeave stock slumped Thursday after one Wall Street analyst issued the most bearish outlook yet for the polarizing artificial-intelligence cloud vendor.

Abhishek Shukla of HSBC initiated coverage of CoreWeave in a research note Thursday, issuing a $32 price target and a Reduce rating -- HSBC's equivalent of Sell -- citing elevated cost forecasts and few options for diversification. That $32 figure implies a 77% drop from Wednesday's closing price and the lowest target among analysts polled by FactSet.

CoreWeave shares fell 6.3% to $134.08 on Thursday.

The buzzy AI play has divided opinion since going public in March. Investors have, quite literally, bought into CoreWeave's story: The share price has more than tripled in less than three months. But the company has stumped Wall Street with its furious cash burn and high debt load.

Among analysts polled by FactSet, four rate the stock a Buy, three say Sell, and 17 rate it a Hold. Price targets, too, are all over the map, with HSBC staking a claim as Wall Street's biggest bear. "We believe CoreWeave shares are significantly overvalued," Shukla wrote.

One of CoreWeave's greatest selling points -- its deep connections to AI computing -- may also be its Achilles' heel, Shukla argued. The company's graphics processing unit, or GPU, infrastructure is purpose-built for AI workloads. That singular focus has meant a reliable pipeline of Nvidia GPUs and has allowed the company to fine-tune technology and reduce sales and marketing costs. It's also attracted big business from Microsoft, one of the leading AI hyperscalers.

But CoreWeave's clear focus may limit its ability to maneuver in an increasingly competitive market. Companies that offer general-purpose clouds, rather than solutions strictly focused on AI, can sell a wider array of services and don't face the same ruthless competition, according to HSBC.

"We believe CoreWeave's competitive position is weak and, for the most part, its competitive advantage is unproven or temporary in nature," Shukla wrote.

One reason CoreWeave's cloud advantage might be temporary: Some of its competitors might be its own own customers. Microsoft accounted for about 72% of the company's first-quarter revenue, but HSBC is concerned the tech giant might start to bypass CoreWeave and get GPUs straight from Nvidia, CoreWeave's main supplier. (CEO Michael Intrator said no single customer made up more than 50% of the company's backlog in the first quarter.)

As the company diversifies its customer base, its marketing and research costs may increase, Shukla argued. But if CoreWeave's buyers (and suppliers) remain concentrated, its margins could get squeezed from both sides.

CoreWeave declined to comment.

Speaking of margins, HSBC offered a downcast view of CoreWeave's rent and interest expenses, which have come under fire from some Wall Street analysts. Data-center rent totaled 16% of the company's first-quarter revenue, and that figure may be on the rise as demand for data centers continues to climb.

CoreWeave also paid a steep average implied interest rate of 12.4% in the first quarter to finance its projects. The company's financing terms could improve as the Federal Reserve cuts rates, Shukla conceded, but a more diverse customer base will hurt here, too.

"The company is likely to end up with customers with significantly inferior credit ratings," Shukla wrote, with this dynamic likely elevating rates or requiring greater equity. That's a problem, considering HSBC estimates that the company will need another $42 billion in debt financing through the end of 2030.

HSBC forecasts an average interest rate of 9.6% by that point, much higher than the 7.8% consensus among Wall Street analysts.

Write to Nate Wolf at nate.wolf@barrons.com

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July 17, 2025 15:15 ET (19:15 GMT)

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