Goldman Sachs upgraded CoreWeave to buy from neutral after a sell-off that the bank considers overblown. The analyst argues the company's asset-backed financing will limit the rise in its cost of capital.
Goldman Sachs upgraded CoreWeave to buy from neutral on Monday, telling investors to buy the dip after last week's sell-off. The bank cut its price target to $106 from $139, which still implies nearly 73% upside from Friday's close. CoreWeave popped 6% in the premarket after the rating change.
Why Goldman calls the sell-off overblown
Shares of CoreWeave plunged 25% last week on worries in the credit market that the company had borrowed too much for its AI build-out. CoreWeave has taken out more than $51 billion of debt to finance AI infrastructure.
Analyst Gabriela Borges nonetheless sees the company near the top of its group. According to CNBC, she wrote in a note to clients: "Not all neoclouds are created equal". She defines quality as the ability to deploy and scale high-performance GPU clusters at speed, and the potential to build durable moats by moving up the stack beyond pure GPU-as-a-service infrastructure.
Financing and the cost of capital
Borges said CoreWeave's cost of capital will not rise significantly because many of its deals use asset-backed financing, which carries lower rates. She added that its blended cost of debt is likely to rise between 100 and 200 basis points, but that the company should cap its weighted average cost of capital so equity return profiles stay attractive.
Crypto Briefing reported that Goldman also cited CoreWeave's long-term AI infrastructure agreement with Meta and its contracted power capacity as factors behind the upgrade.
31 of 45 analysts rate CoreWeave buy or strong buy
The call falls in line with consensus. Of the 45 analysts covering CoreWeave, 31 have a buy or strong buy rating, according to LSEG data.
Sources: CNBC, Crypto Briefing
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