HSBC has assigned a "reduce" rating to AI cloud service provider CoreWeave (CRWV, Financial) with a target price of $32, representing a 76% decrease from its recent closing price. The downgrade is attributed to low returns, lack of competitive differentiation, and heavy reliance on Microsoft (MSFT) and NVIDIA (NVDA).
Analysts led by Abhishek Shukla suggest that CoreWeave needs to transform into a general cloud computing service to drive higher returns by expanding its customer base beyond Microsoft and OpenAI. These two clients accounted for over 72% of CoreWeave's revenue and orders in early 2025.
HSBC forecasts that starting in 2030, about 35% of CoreWeave's revenue will be allocated to maintenance capital expenditures due to aging GPUs, impacting free cash flow. The firm's earnings per share estimates from 2027 to 2030 are about 45% lower than market consensus, with potential overestimation of non-GAAP EBITDA and operating margins.
The dependency on NVIDIA as the sole GPU supplier and Microsoft as a major client is seen as a long-term vulnerability. Analysts note that CoreWeave lacks pricing power in negotiations with both companies, and that Microsoft's reliance on CoreWeave may diminish as GPU supply improves.
