BofA doesn't advise buying shares of «Nvidia protégés». Is their rally over?

An analyst at Bank of America declined to advise buying the securities of CoreWeave, a provider of cloud services for developing and training AI models, of which Nvidia is a shareholder, supplier and customer. After the stock has quadrupled in recent months, its further short-term rally may be limited, BofA said. Nevertheless, the analyst recognized the positives that could be drivers of long-term growth, and his target remains the highest on Wall Street.

Bank of America analyst Brad Sills downgraded CoreWeave's stock from «buy» to «neutral», CNBC reports. Sills believes the bulk of their near-term upside potential has already been factored into the price, and the company's price-to-earnings ratio for 2027 is significantly higher than its peers: 25 versus about 16.

Despite the downgrade, the analyst raised his target price on CoreWeave's stock from $76 to $185 - now the highest target on Wall Street, it's 25 percent above the last close, notes Bloomberg. While capital spending in AI by tech giants is nearing a peak, demand for CoreWeave infrastructure remains steady, according to Sills. «We recognize the positive drivers: the addition of a major new customer, an expanded partnership with OpenAI and the successful raising of debt financing at a reduced rate,» the investment bank analyst stressed in a note cited by CNBC.

CoreWeave shares jumped more than 7% to $157.7 in Monday trading.

The company went public at the end of March. Its $1.5 billion IPO was the largest tech offering on Wall Street since 2021, CNBC noted. Since then, quotes 

CoreWeave has soared 300%. By comparison, the Nasdaq 100 tech index has added about 14% over the same period. Such a rapid rally has led someto compare the company's securities to so-called «meme» stocks - whose growth is fueled by hype rather than sound financials.

More and more analysts are becoming cautious about CoreWeave's valuation. The downgrade from BofA was the second since the IPO, with Barclays' Raimo Lenschow being the first to express concern. In late May, he changed his recommendation on the company's shares from Overweight (Buy) to Neutral (Equal Weight (Hold)) and lowered his target price from $100 to $70. Lenshaw expressed the same opinion as his colleague from BofA: CoreWeave's growth potential remains, but the current value of the securities looks overvalued.

More than half of analysts tracking CoreWeave are neutral andrecommend holding the company's shares in their portfolios, while just over a third recommend buying. The Wall Street consensus target price target is $72.6 and implies a 50% drop from the June 13 close.