The stock of CoreWeave Inc. has been soaring, but according to a MoffettNathanson analyst, investors should stay away from it.
Although CoreWeave (CRWV) shares have increased 177% since their $40 IPO price, Nick Del Deo of MoffettNathanson stated that the advance is not indicative of a significant improvement in the data center company’s fundamentals. He pointed out that “trading dynamics” could better explain a large portion of CoreWeave’s spectacular stock increase, despite certain encouraging announcements, such as an enlarged agreement with OpenAI.
He pointed out that the stock’s average daily trading since its most recent earnings release has been comparable to its float, but that the float should rise after the company’s lockup ends this summer. “CoreWeave’s thin float has surely played a role,” he said.
For investors, what does all of it mean? In a Monday note to clients, Del Deo stated that the risks of switching to a sell call would “remain far higher than we feel comfortable accepting.” “Our bias is now skewed to the downside, as opposed to being quite balanced in our initiation, but attempting to trade this move appears exceptionally dangerous,” he wrote.
Even though shares are trading above $100, he maintained his neutral rating but raised his price objective from $43 to $56.
In his research, he stated, “We don’t think investors should touch this stock either way,”
Del Deo questioned whether management would launch a convertible offering or utilize shares as cash for an acquisition, taking advantage of the stock’s tremendous gain. This is “a distinct possibility, given the track recordof this management team and their savviness with respect to capital-raising activities,” he stated.
Del Deo, meanwhile, adopted a calm stance toward recent events that appeared to be seen well by investors. For instance, Wall Street responded favorably to Nvidia Corp.’s (NVDA) mid-May financial report, which revealed the chip company’s CoreWeave holdings as of the end of the March quarter. NVDA is a well-known investor in CoreWeave. However, based on earlier disclosures and Reuters reporting from March stating that Nvidia purchased $250 million worth of shares in the IPO, Del Deo was able to infer Nvidia’s holding of 24.2 million shares prior to the filing. Nevertheless, CoreWeave’s stock rose 22% in the day after the filing.
“So, what could have been interpreted as a concerning signal (Nvidia stepping in to help get the IPO over the finish line) was instead interpreted as a bullish one (Nvidia buying up shares),” said Del Deo.
