AI Infrastructure Expansion And Leverage Will Drive Utilization And Margin Risks Ahead

Catalysts

About CoreWeave

CoreWeave operates an AI focused cloud infrastructure platform that provides high performance compute, storage, networking and software services for advanced AI workloads.

What are the underlying business or industry changes driving this perspective?

• The rapid expansion of AI workloads is pushing CoreWeave to commit to power and data center capacity far ahead of demand. Any sustained moderation in AI training intensity or shift toward more efficient models could leave the company with underutilized infrastructure and pressure revenue growth and return on invested capital.
• The company is planning 2026 capital expenditures at more than double already elevated 2025 levels. This build out is being funded primarily with substantial leverage, which could compress future net margins and earnings if utilization or pricing weakens before the debt burden is amortized.
• Dependence on a tightly constrained ecosystem of powered shell providers and GPU supply means continued delivery delays or cost inflation could erode CoreWeave's performance advantage and force discounting, negatively affecting gross margins and operating income.
• As hyperscalers and large infrastructure incumbents scale specialized AI offerings and vertically integrate networking, storage and software, CoreWeave may face intensifying price and feature competition that caps long term revenue per GPU and undermines the durability of its current EBITDA margins.
• The strategy of serving both large AI labs and a long tail of startups through complex capacity arrangements increases credit and churn risk. A downturn in AI funding or consolidation among leading labs could reduce backlog conversion and impair future earnings visibility.

Assumptions

This narrative explores a more pessimistic perspective on CoreWeave compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming CoreWeave's revenue will grow by 72.6% annually over the next 3 years.
• The bearish analysts are not forecasting that CoreWeave will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate CoreWeave's profit margin will increase from -19.2% to the average US IT industry of 7.0% in 3 years.
• If CoreWeave's profit margin were to converge on the industry average, you could expect earnings to reach $1.5 billion (and earnings per share of $2.53) by about December 2028, up from $-824.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.5 billion in earnings, and the most bearish expecting $-713.2 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 28.0x on those 2028 earnings, up from -53.3x today. This future PE is lower than the current PE for the US IT industry at 31.1x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• CoreWeave is operating in a highly supply constrained environment where demand for its AI cloud far exceeds available capacity. The company has already contracted 2.9 gigawatts of power with over 1 gigawatt still to be sold, which implies a long runway of revenue growth as this backlog converts and new customers are onboarded. This supports sustained top line expansion and potentially higher earnings over time.
• The company has built a large revenue backlog of more than $55 billion and over $50 billion of remaining performance obligations, with a growing share coming from investment grade customers and diversified across hyperscalers, AI labs, enterprises and the public sector. This improves visibility and resilience of future revenue, margins and cash flows.
• CoreWeave is consistently recognized for best in class AI infrastructure performance, demonstrated by first to market deployments of GB300s, industry leading MLPerf results and repeated top rankings from independent analysts. This strengthens its competitive moat and pricing power and can underpin robust gross margins and EBITDA generation over the long term.
• The business is broadening beyond raw compute into storage, networking, orchestration and higher value software and services, including AI object storage, observability, security and M&A driven expansion into tools and industrial AI. This increases wallet share per customer and supports structural improvements in net margins and long term earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for CoreWeave is $53.68, which represents up to two standard deviations below the consensus price target of $130.96. This valuation is based on what can be assumed as the expectations of CoreWeave's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $208.0, and the most bearish reporting a price target of just $36.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $22.1 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 28.0x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of $88.16, the analyst price target of $53.68 is 64.2% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.