Rosenblatt lowered its price target for CoreWeave by 36% ahead of the earnings report. What does Wall Street expect?

Rosenblatt Securities has lowered its price target for CoreWeave shares by 36%—from $250 to $160—due to rising borrowing costs, which the company uses to finance the construction of AI infrastructure, according to GuruFocus. The target price revision came ahead of CoreWeave’s third-quarter earnings report—the company will release its results after the market closes in New York.

The main concern regarding CoreWeave is that its business expansion strategy is becoming increasingly costly. Even steady revenue growth may not translate into higher returns for shareholders if an increasing share of operating profit is consumed by debt service, noted Rosenblatt analyst John McPeak.

He revised his target price after raising his valuation estimates for borrowings under the CoreWeave credit line with a deferred drawdown date and increasing the discount rate used to value future cash flows.

Rosenblatt maintains its “buy” rating on CoreWeave shares. McPeak noted that the cloud AI infrastructure provider’s growth potential remains attractive even though its debt burden threatens its profitability.

Other analysts have recently expressed similar concerns. On November 4, Citi lowered its price target for CoreWeave shares from $159 to $128, while Deutsche Bank lowered its target from $150 to $125. Both firms maintained their “buy” rating on the stock, which is in line with the consensus. Since the beginning of the year, CoreWeave’s stock has fallen nearly 35% and is now trading below $50.

Analysts forecast that CoreWeave's revenue will grow 160% year-over-year in the third quarter, to $3.54 billion, a sharp increase in the loss—to $1.27 per share, compared with $0.08 a year earlier—and a modest adjusted operating profit of $240 million.

But interest expenses—which the company itself estimates at approximately $900 million—more than offset that profit. The reduction in the cost of capital and, consequently, interest expenses—CoreWeave’s key financial lever—is precisely what could now slip through its fingers, according to Barron’s.

The company's business model is built on a close relationship with Nvidia, which is simultaneously a 9% shareholder, a customer, and a key supplier. CoreWeave leases Nvidia servers, and it is precisely this access to the hardware that has secured the company major cloud contracts with giants such as Microsoft and Meta. As of the end of June, the order backlog stood at approximately $104 billion, and at the start of the third quarter, more than $25 billion in new customer commitments were added to it.

To meet the terms of these contracts, CoreWeave raises capital through debt instruments, convertible bonds, and equity, and uses the proceeds to purchase Nvidia equipment. But investors’ appetite for debt from non-cloud providers appears to have waned: the company’s €2 billion senior bonds maturing in 2032 are trading at about 75% of face value, and its convertible debt is valued even lower. If CoreWeave loses its ability to raise debt, its capacity to expand cloud infrastructure could suffer, which risks leading to contract breaches, Barron’s reports.

Concerns about the cost of financing CoreWeave’s AI infrastructure intensified in October: at that time, the company’s credit risk metric hit a new all-time high amid a sell-off of its high-yield bonds, and its stock lost more than 20% over the course of several trading sessions. The company has repeatedly raised debt financing this year—through loans secured by chips, high-yield and convertible bonds, as well as stock sales. By the end of June, its total debt, including lease obligations, was estimated at approximately $52 billion.

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