Two more analysts now recommend buying CoreWeave stock. What does this have to do with Nvidia?

Melius Research and Wells Fargo Securities have taken a bullish stance on shares of cloud provider CoreWeave. Melius believes that Nvidia's plans to invest billions of dollars in OpenAI will have a massive impact on the entire AI industry, and CoreWeave, which leases servers based on Nvidia's AI chips, will be one of the beneficiaries. Wells Fargo notes that the cloud provider will benefit from a shortage of computing power.

Melius Research analyst Ben Reitzes upgraded shares of cloud provider CoreWeave from Neutral to Buy and raised their target price from $128 to $165, Barron's reports. The new target is 24% above the stock's closing level on Sept. 22. Reitzes explained that Nvidia's plans to invest $100 billion in ChatGPT developer OpenAI will have a massive impact on the entire AI industry. According to the analyst, the agreement "signals accelerating demand for cloud computing for AI," and CoreWeave is "well positioned to meet that demand."

The boom in the AI industry has led to a shortage of two key resources: chips and power, Barron's notes, and CoreWeave has both. That, Melius notes, explains why the company is already partnering with Nvidia, OpenAI, Microsoft, Meta Platforms and Google. Reitzes recalled that Nvidia is among CoreWeave's investors, and the company is usually one of the first to get access to the leading chipmaker's latest AI systems. CoreWeave has contracts for about 2.65 gigawatts of power capacity, but only a fraction has actually been deployed so far.

"With new contracts with Nvidia, other cloud customers, and our prediction that CoreWeave will get a slew of additional contracts, we are raising estimates as the company begins to monetize available power capacity," the Melius analyst wrote.

Wells Fargo Securities analyst Michael Turrin upgraded CoreWeave from Neutral to Overweight, which also equates to a Buy recommendation. He raised the target from $105 to $170, which implies a potential upside of almost 28%.

According to Turrin, "the long-term outlook for the AI market remains uncertain," but "demand for computing capacity is outpacing supply, and the shortage will persist through at least early next year," Barron's wrote. "These constraints favor CoreWeave, which has already proven its ability to deal more effectively with supply-demand imbalances in some cases," Wells Fargo said in a note cited by the publication. CoreWeave is "fully focused on buying and starting up new capacity," the analysts added.

The investment bank notes that CoreWeave's $6.3 billion supplemental agreement with Nvidia, which became known last week, also gives confidence in CoreWeave's business. Under the terms of the deal, Nvidia agrees to buy back any unused CoreWeave capacity through April 13, 2032. Turrin estimates that this gives CoreWeave a "blank check to build new capacity." He believes the company will have no problem selling compute resources in the short term, but having a guarantor in the form of Nvidia should "build confidence" in the ability to continue scaling.

Investors expect additional details on the Nvidia deal in November when CoreWeave reports its third-quarter results, Barron's noted.

Last week, CoreWeave received two more "buy" recommendations, also on the back of a new contract with Nvidia. In total, according to MarketWatch, 11 analysts out of 28 now advise investing in these securities. A month ago there were eight, and three months ago there were six.

Most of Wall Street, however, is taking a cautious view on the cloud provider's stock: it has 15 "hold" recommendations, while two other analysts advise selling CoreWeave shares. The consensus price target of $130 is on par with current values.

On Tuesday, September 23, CoreWeave's securities were up almost 2%, but then went down 0.5% to $132.5. Since its IPO in March, the company's shares have risen 242%.

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