Why Shares of Nvidia-Backed CoreWeave Have Blasted 39% Higher This Week
Shares of CoreWeave, an AI data center company backed by Nvidia, surged 39% this week, driven by a $2 billion debt offering and strong demand for AI services. Citigroup analyst Tyler Radke raised the price target from $43 to $94, citing robust earnings and a $4 billion OpenAI expansion deal. Despite the stock's impressive rise, concerns about profitability and customer diversification remain. Investors are advised to approach cautiously, considering the stock's volatility and the company's current lack of profitability.
Surging U.S. Treasury yields may be pressuring the broader market, but they aren't slowing down the artificial intelligence (AI) data center company CoreWeave (CRWV 4.03%). Since last Friday, the stock has blasted roughly 39% higher, as of 11:41 a.m. ET Thursday.
Having a big week
CoreWeave is having a huge week, due to several big announcements. On Wednesday, shares surged after the Nvidia-backed company announced a $2 billion debt offering that matures in June 2023, with the notes yielding 9.25%. The raise came in half a billion dollars higher than expected and was reportedly five times oversubscribed, according to Barron's.
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Also on Wednesday, Citigroup analyst Tyler Radke maintained a neutral, high-risk rating on the stock, but more than doubled his price target from $43 to $94. Radke cited the company's first-quarter earnings report last week, showing a continuation of strong AI demand.
Radke said in his research note:
Overall, we think the print reinforces CoreWeave's high-growth status, especially with recent $4B OpenAI expansion deal, and likely assuages investor concerns around AI capex/infrastructure slowing. Shares have gone vertical ... While we'd argue a portion of the rerating is justified, given strong Azure/hyperscaler numbers and capex... we'd like to see more progress on profitability and more customer diversification.
Keep an eye on valuation
Just a few months ago, many investors saw CoreWeave's highly anticipated IPO as a failure because it was priced much lower than management had hoped. Since then, the stock is up 176% and trades at over a $55 billion market cap.
While CoreWeave should be a big beneficiary of continued AI success, remember that the company is not yet profitable. For this reason, I'd recommend investors start small and then dollar-cost average into a position over time because the stock could be susceptible to big moves in both directions.
