CoreWeave (CRWV) shares declined more than 5% in premarket trading on Tuesday, as oil prices surged above $110 a barrel, reigniting risk-off sentiment across markets. The drop follows a volatile period for the AI cloud provider, which saw its stock plunge roughly 20% last week amid rising bond yields and concerns over its debt-funded expansion.
S&P 500 futures slipped 0.09%, while Nasdaq 100 futures fell 0.5%, reflecting broader caution among investors.
HSBC reiterates bearish stance
HSBC Global Investment Research maintained its Reduce rating on CoreWeave, keeping a price target of $39, which implies a potential downside of 36% from Monday's closing price. The bank also left its earnings estimates unchanged, noting they remain significantly below Wall Street consensus.
HSBC highlighted structural concerns, including debt market pressures and moderating revenue growth for large language model (LLM) providers, which could dampen demand for spot compute capacity. The bank argued that hyperscalers generate substantially more revenue per megawatt of computing capacity due to lucrative short-term contracts and differentiated general-purpose cloud offerings, contrasting with the more commoditised GPU-focused infrastructure provided by neoclouds.
While HSBC acknowledged that neocloud providers have secured several profitable short-term contracts between May and September 2026, it warned that the economics of such deals could face headwinds. CoreWeave, for instance, signed three-to-six-month contracts in September at an annualised revenue rate of approximately $40 million per megawatt. HSBC also cited agreements with SpaceX, Anthropic, and Google that could generate between $22 million and $50 million per megawatt annually.
However, HSBC cautioned that rising yields and debt market concerns could prevent neoclouds from building speculative capacity, which might have been offered under lucrative short-term contracts. The bank's 2028-2030 non-GAAP earnings-per-share estimates are 50%-70% below consensus, and it expects CoreWeave to achieve a long-term non-GAAP operating margin of 15%-16%, compared with management's guidance of about 25%.
JPMorgan sees debt concerns as overblown
In contrast, JPMorgan argued that investor worries about CoreWeave's mounting debt and rapid cash burn may be overstated. Equity analysts led by Samik Chatterjee said the company's financing needs reflect the pace of its expansion rather than weak project economics. They pointed to strong demand for computing power and long-term take-or-pay contracts that secure customers before new capacity becomes operational.
JPMorgan estimates that a typical five-year contract generates an unlevered internal rate of return in the mid-teens, exceeding CoreWeave's estimated blended cost of capital of 9%-11%. The bank also noted an additional monetisation lever in recontracting GPUs beyond the five-year duration.
In a conservative scenario, capital spending accounts for about 51% of a five-year contract's value, with approximately 80% financed through asset-level debt. After repaying that borrowing, CoreWeave could retain cash equivalent to about 16% of the contract's value, potentially covering roughly five years of data centre obligations even without renewing the agreement.
Heavy investment pressures cash flow
Despite its positive assessment of project economics, JPMorgan acknowledged that CoreWeave's aggressive expansion would continue to weigh on near-term cash flow. The bank estimates that each gigawatt of fully operational capacity could generate $10 billion to $15 billion in annual revenue. However, bringing an additional gigawatt online requires more than $35 billion in upfront capital expenditure.
"The cash burn is not a function of unfavorable economics per project but more of the capacity being ramped each year relative to the installed active capacity at this time," the analysts wrote.
Cantor Fitzgerald has also maintained its Overweight rating on CoreWeave, with a $176 price target. The firm argued that the company does not face a demand problem, noting that customers continue to seek computing power while available capacity remains scarce.
This article is for informational purposes only and does not constitute financial advice.
