HSBC has given the lowest forecast for Coreweave shares. Why does it recommend selling?

British bank HSBC has initiated coverage of AI cloud services provider Coreweave, issuing the most pessimistic outlook for the company's stock on Wall Street. HSBC believes the company's shares are significantly overvalued and recommends selling them.

HSBC analyst Abhishek Shukla gave Coreweave's shares a "reduce" rating (reduce) on July 17, the "sell" counterpart to HSBC's "sell" rating, writes Barron's. The 12-month price target is set at $32, suggesting the stock is down 77% from its July 17 closing price.

The analyst pointed out the high concentration of the company's revenue: 72% of Coreweave's revenue in the first quarter of 2025 came from Microsoft. Together with OpenAI, Microsoft forms the vast majority of the company's outstanding orders. Key customers, including Nvidia in addition to Microsoft and OpenAI, do not use Coreweave's own software services, only renting hardware to deploy their own projects. According to HSBC, this weakens customer dependency and reduces the value of the company's services.

"We believe Coreweave's competitive position is weak and for the most part its competitive advantage is temporary," Shukla notes.

Coreweave's stock has soared more than 240% since its IPO in late March, but Shukla believes its current value is unnecessarily overvalued. "We believe Coreweave stock is significantly overvalued," the analyst writes.

One of Coreweave's major advantages with its specialization in AI computing can be both the company's Achilles' heel, Shukla argues. Companies that offer universal cloud platforms are able to cover a wider range of services and don't face as stiff competition as pure AI-centric providers, according to HSBC.

He cites low asset turnover and the high capital cost of replacing GPUs every 6-7 years as an additional barrier to growth: such costs will be needed simply to maintain current revenue levels beyond 2030. It is the high capital expenditure requirements of the ultra-fast growth phase that underpins HSBC's low free cash flow estimate for Coreweave.

HSBC analysts warn that as Coreweave's customer base expands, marketing and research costs will inevitably rise - new segments will require additional investment in customer acquisition and support.

HSBC also points out that analysts underestimated the impact of rental and interest expenses on the company's results. Data center rental expenses reached 16% of revenue in the first quarter, and they could increase as demand continues to grow. In addition, Coreweave's average interest rate on borrowings was 12.4% in the same period. Shukla admits that with future Fed rate cuts, the cost of borrowing for the company will decrease, but attracting new customers with lower credit ratings could raise funding costs again or require additional equity issuance. HSBC estimates Coreweave will need about $42 billion in debt financing by the end of 2030, with the bank forecasting an average rate of 9.6% versus 7.8% in the consensus of Wall Street analysts, Barron's reports.

The consensus target on Coreweave shares, according to LSEG data as of July 17, is $91 - it's 31% below the current price. Most ratings on Wall Street, suggest a "hold" recommendation: 17 out of 23, according to CNBC data. 

This article was AI-translated and verified by a human editor