AI unicorn faces high leverage challenges. Bank of America Corp downgrades CoreWeave (CRWV.US) rating to "Hold".

Driven by the continuous hype of the concept of artificial intelligence, the stock price of AI infrastructure company CoreWeave (CRWV.US) has surged more than 145% since its listing in March. However, this rapid rise in stock price has also raised concerns among analysts about its valuation and financial structure. Bank of America Corp released a report on Monday downgrading CoreWeave's stock rating from "buy" to "hold", while significantly increasing its target price from $76 to $185. "After the first quarter earnings report, CoreWeave's stock price has risen by 145%. We believe that the short-term upside potential has been largely absorbed by the market," wrote Bank of America Corp analyst Brad Sills in the report. This combination of "downgrade rating + increase target price" highlights the contradictions and challenges that analysts face when dealing with "new hot stocks". CoreWeave's March IPO was priced at $40, and the current stock price is around $157, much higher than the average target price of $73 set by Wall Street analysts, with a target price range between $36 and $185. CoreWeave is an AI cloud computing infrastructure provider that primarily leases cloud servers with NVIDIA Corporation's (NVDA.US) AI accelerators to customers. Its largest customer is Microsoft Corporation (MSFT.US), accounting for 72% of the company's first-quarter revenue. In addition, CoreWeave has also reached new partnership agreements with OpenAI and Alphabet Inc. Class C, a subsidiary of Alphabet Inc. Class C (GOOG.US, GOOGL.US), with healthy order backlogs. Against the backdrop of soaring demand for generative AI and large-scale model training, the market's demand for AI cloud computing continues to grow, leading to a supply-demand imbalance. This market structure has become the foundation for CoreWeave to achieve rapid revenue growth. In the first quarter of this year, the company's revenue increased by an astonishing 420% year-on-year. However, behind the rapid growth lies heavy capital investment and debt burden. To maintain its expansion pace, CoreWeave needs continuous financing to purchase more AI servers and build data centers, which puts pressure on its financial statements. In the first quarter of 2025, the company's total costs for interest and depreciation expenses accounted for 72% of its revenue, resulting in a pre-tax net loss of $269 million. Among them, interest expenses in a single quarter amounted to $264 million. To raise funds, the company issued $2 billion in senior notes in May with a high face interest rate of 9.25%, adding an additional $46 million in interest burden for the quarter. Analysts pointed out that although the new bond issuance provided some relief, "this only accounts for a small portion of the company's incremental financing needs, raising many questions." As of the end of March, CoreWeave's total debt had reached $8.7 billion, and according to the company's plans, it will need to add $18 billion to $21 billion in capital expenditures by 2025, while also repay $3.8 billion in debt due by March 2026. Sills emphasized in the report, "Whether the company can obtain low-cost financing will be a key factor in the success of future expansion." In the current interest rate environment, if CoreWeave cannot effectively reduce financing costs, it may struggle to contain the rising interest costs, affecting its growth pace and profit expectations.