On Wednesday alone, CoreWeave’s shares jumped more than 20%.
This week, CoreWeave Inc.’s stock has surged as investors have grown more optimistic about the cloud computing company as a result of positive developments involving other artificial intelligence competitors. Can the rally, however, last?
Despite indications of robust AI demand in the tech sector, which have caused CoreWeave shares (CRWV) to rocket 38% in the last four trading sessions, MoffettNathanson analyst Nick Del Deo advises investors to exercise caution. Although there appears to be a significant demand for AI, CoreWeave is just one of several businesses attempting to meet this need, and Del Deo does not believe the company’s offerings will stand out much.
CoreWeave bulls have undoubtedly had a lot of positive news in recent days, which has helped the stock recover from a decline caused by the company’s most recent earnings report and the end of its post-IPO lock-up period.
Due in part to rising computational expenses, OpenAI increased its cash burn to $115 billion until the end of 2029, $80 billion more than first anticipated, according to a study published last Friday by the Information. This implies that cloud computing firms will profit from increased demand. The neocloud company Nebius Group NV (NBIS) and Microsoft Corp. (MSFT) announced a $17.4 billion infrastructure deal on Monday, indicating that large cloud-services providers are increasingly seeking to increase their capacity externally rather than increasing capital expenditures to build their own data centers.
During the Goldman Sachs Communacopia + Technology Conference on Wednesday, CoreWeave also made positive remarks. According to Chief Development Officer Brannin McBee, the company is witnessing “yet another inflection in demand” as a result of rising inference demand. “Clients are coming to us saying that they need this infrastructure,” McBee said.
Furthermore, CoreWeave’s stock is rising today as a result of Oracle Corp.’s (ORCL) spectacular earnings announcement on Tuesday, which revealed that the business has four multibillion-dollar contracts in the works. Oracle, which was seeing its own spectacular stock surge on Wednesday, agreed to pay $30 billion to supply OpenAI with data center capacity in July. Just Wednesday saw a 20% increase in CoreWeave’s stock price.
Although Del Deo described the demand environment as “favorable,” he feels that “it’s inappropriate to think of CoreWeave’s infrastructure capabilities as singularly unique; they can be matched.”
Oracle’s alliances with OpenAI and Microsoft’s agreement with Nebius demonstrate that rivals are offering cutting-edge cloud computing options as well. Additionally, in order to better control costs and operational risk, customers may choose to diversify their cloud computing providers.
“The dynamics that we’re observing suggest that the returns on delivering AI infrastructure to large customers are likely to compress due to competitive forces,” Del Deo stated.
Cloud computing providers like CoreWeave have an edge in a market with limited supply since they are literally unable to bring capacity up quickly enough to meet demand. In the short run, that benefits the company’s pricing dynamics, but Del Deo thinks that as neoclouds compete more, prices will decline.
According to Del Deo, CoreWeave is at risk from OpenAI’s disproportionate demand because of its substantial cloud computing investments, which offer it “quasi-monopsony buying power.” In the future, OpenAI may have greater control over the costs it pays cloud computing providers, which could lead to pressure on prices to decline.
This implies that CoreWeave’s future success will rely on its capacity to develop a unique tech stack rather than only relying on secular tailwinds from AI.
CoreWeave has a price target of $65 and a neutral rating from Moffett Nathanson.
