"Not all Neoclouds are the same": Experts recommend buying CoreWeave and Nebius after the market correction

Despite last week’s sell-off in shares of cloud provider CoreWeave—which saw the stock drop 25% amid concerns about its debt burden—analysts at Goldman Sachs and Truist recommend buying the stock. The AI cloud provider’s contracts are likely to prove more profitable than investors expect, according to a Goldman Sachs analyst, as reported by Seeking Alpha. Truist strategists, in turn, reaffirmed their “buy” recommendation not only for CoreWeave shares but also for another cloud company—Arkady Volozh’s Nebius— according to the Investors Hub platform. Against this backdrop, shares of both AI-focused companies rose 7% and 1.3%, respectively, during trading on October 19. However, at the time of writing, the stocks’ gains had slowed: CoreWeave is up 2.6%, while Nebius shares are up 2.5%.

Goldman Sachs analyst Gabriela Borges upgraded her rating on CoreWeave shares from “Hold” to “Buy,” but lowered the price target from $129 to $106 per share. This target, however, implies a 72.6% increase in the stock price relative to the closing price on October 16. “Not all cloud providers are the same, and we consider CoreWeave to be among the highest-quality players in this ecosystem,” the analyst noted. “By ‘quality,’” she explained, the bank’s strategists mean “the ability to execute plans, including rapidly deploying and scaling high-performance graphics processing unit (GPU) clusters, as well as the potential to create sustainable competitive advantages by going beyond simply providing GPUs as a service and moving up the technology stack,” Borges told CNBC.

However, Borges noted that CoreWeave’s cost of capital will not increase significantly, as many transactions utilize asset-backed financing, which carries lower interest rates. “The primary way CoreWeave raises funds to scale its AI infrastructure is through deferred drawdown loans (DDTLs). This is project financing secured by assets, rather than traditional corporate debt,” the analyst wrote. According to her, by the time a contract ends, the associated debt is often largely or fully repaid. This allows CoreWeave to extract residual value from its GPU fleet or lease them out again, without having to continue servicing the debt.

In addition, CoreWeave’s annual recurring revenue per megawatt (a metric for the efficiency of capacity leasing) and the unlevered internal rate of return (IRR) of its projects “are likely to rise over the next 24 months due to a capacity shortage,” Borges noted. CoreWeave stands out from other non-cloud providers in terms of its performance-to-cost ratio and its ability to successfully bring new capacity online, the analyst believes.

Truist analysts, in a research note published Sunday evening, also reaffirmed their “buy” rating on CoreWeave shares, according to Investors Hub. No further details were provided regarding the analysts’ comments on the non-cloud company’s stock.

Truist analysts also reaffirmed their “Buy” rating on Nebius shares. The experts set a price target of $355, which is more than double the stock’s closing price on Friday, October 16. In their report, the analysts addressed recent market concerns regarding non-cloud-based AI platforms, which arose after the cancellation of Firmus’s initial public offering (IPO) and contributed to a sell-off in the AI infrastructure sector. However, Truist believes that the cancellation of Firmus’s IPO does not necessarily indicate deep-seated structural problems among cloud providers with established contract portfolios.

Analysts also pointed to an expected enterprise value-to-sales (EV/Sales) multiple of 4.5 for Nebius in 2028. According to Truist, this valuation is supported by forecasts of above-average revenue growth over this period. This valuation reflects the brokerage firm’s expectations for Nebius, rather than confirmed future financial results, explains Investors Hub.

32 of the 47 analysts covering CoreWeave stock recommend buying it. 12 of them advise holding it in a portfolio, and only three recommend selling it.

As for Nebius shares, 17 out of 26 analysts recommend buying them. Eight are neutral, and only one advises selling.

Last week, shares of companies in the AI infrastructure sector were heavily sold off: Nebius shares fell by about 21% during that time, while CoreWeave shares dropped by 25%. The pressure stemmed from investors reassessing these companies’ valuations, their capital expenditure needs, and financing terms, according to Investors Hub. In addition, market participants are assessing the potential implications of rising borrowing costs and the significant investments required to expand data center capacity.

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