CoreWeave (NASDAQ:CRWV) received a Reduce rating and a meager $32 price target by HSBC Global Research due to relatively low returns, a lack of differentiation and an overreliance on Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA).
CoreWeave shares dropped 7.5% by the end of Thursday market trading.
“Selling more value-added services driven by the software stack, as is done by general purpose clouds, may be key to achieving stronger returns,” said HSBC analysts, led by Abhishek Shukla, in a highly detailed investor note. “But CoreWeave would first need to successfully shift to a general purpose cloud offering and diversify away from Microsoft and Open AI (which together accounted for more than 72% of its revenue and most of its backlog in 1Q25) towards customers that require CoreWeave’s full software stack.”
The investment bank expects 35% of CoreWeave’s revenue will be devoted to maintenance capex by 2030 onwards due to aging GPUs, which in turn will reduce free cash flow.
“Our 2027-30e EPS for CoreWeave are c45% below consensus,” Shukla said. “We believe the consensus significantly overestimates long-term non-GAAP EBITDA and operating profit margins. The consensus also assumes significantly lower implied interest rates on the company’s debt.”
HSBC also identifies CoreWeave’s overreliance on Microsoft (NASDAQ:MSFT) as a customer and Nvidia (NASDAQ:NVDA) as a GPU supplier as potential long-term weaknesses.
“As Nvidia is the only supplier for CoreWeave’s GPUs, we believe CoreWeave has limited bargaining power,” Shukla said. “We believe Nvidia has a strategy of propping up challengers to hyperscalers to increase competition in the GPU leasing market.”
“We believe CoreWeave has weak bargaining power with Microsoft, which accounted for more than 70% of its 1Q25 revenue,” HSBC added. “We sense Microsoft leased CoreWeave’s GPUs largely because of an ongoing GPU shortage in the market. As GPU availability improves, we expect Microsoft to procure more of the GPUs directly instead of leasing them from CoreWeave and then subleasing them to Microsoft’s customers.”
However, an advantage of depending on a limited number of clients for the bulk of revenue is that sales and marketing costs remain low for CoreWeave.
More on CoreWeave, Microsoft and Nvidia
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