CoreWeave Bulls Should Brace For 'Wild, Lumpy, Volatile Ride,' JPMorgan Says
News Summary
JPMorgan analyst Mark R. Murphy has trimmed CoreWeave's rating to Neutral with a price target of $110 (from $135), warning that while the long-term opportunity is "tremendous," investors should brace for a "wild, lumpy, volatile ride." The downgrade follows an eventful third quarter for CoreWeave, where backlog nearly doubled to a record $56 billion, yet supply chain snags began to ripple through its data center expansion plans. A single third-party data center developer's delay caused CoreWeave to shift revenue from Q4 FY25 into Q1 FY26, prompting a $150 million cut in FY25 revenue guidance and an $8.5 billion reduction in CapEx. Murphy highlighted that this indicates CoreWeave, too, is feeling the global squeeze on power and compute infrastructure. Despite near-term hurdles, CoreWeave's momentum remains impressive, with revenue growing 134% year-over-year, operating income beating estimates by $40 million, and new customers including Crowdstrike, Rakuten Group, Poolside AI, Jasper Therapeutics, and NASA. Sovereign demand is also emerging via CoreWeave Federal, serving agencies like NASA's Jet Propulsion Lab and the UK government. JPMorgan remains fundamentally constructive on CoreWeave's long-term prospects, expecting 166% revenue growth in FY25 and a doubling of CapEx in 2026, signaling strong demand for AI compute capacity. However, investors may require patience.
Background
CoreWeave is an AI infrastructure cloud company, providing high-performance computing resources, particularly for AI and machine learning workloads. It was previously seen as an AI cloud upstart that could bypass bottlenecks faced by larger tech companies. Globally, the demand for AI compute capacity is growing at an unprecedented pace, placing immense pressure on power supply, data center construction, and the supply chains for specialized hardware like AI chips. Even fast-growing companies are increasingly finding it challenging to entirely circumvent these macro-level constraints.
In-Depth AI Insights
What are the deeper implications of supply chain bottlenecks affecting AI infrastructure expansion? - CoreWeave's situation demonstrates that even well-funded AI infrastructure companies with strong demand are not immune to global physical resource and supply chain constraints. This is not merely an issue of individual supplier delays but a structural challenge facing the entire AI ecosystem, driven by the scarcity of critical resources like power, land, skilled labor, and high-end chips. - These limitations will force AI development to shift from a sole focus on compute expansion to prioritizing resource efficiency and supply chain resilience. AI companies with stronger vertical integration or the ability to secure key resources effectively will gain a long-term competitive advantage. - For investors, this means that in evaluating AI companies, it's crucial to look beyond technological leadership and customer growth, and instead delve into their supply chain management capabilities, CapEx efficiency, and ability to access critical infrastructure, as these factors will directly impact their sustainable growth and profitability. What is the underlying logic behind JPMorgan's maintenance of a 'Neutral' rating coupled with a significant price target cut? - This seemingly contradictory move reflects an increasingly cautious market sentiment towards the valuation models of high-growth AI companies. While the long-term demand outlook remains strong, short-term execution risks and delivery uncertainties are being re-priced. In the economic environment following President Trump's re-election, the market may be more sensitive to corporate earnings predictability and macroeconomic resilience. - JPMorgan's action suggests that even a "tremendous" long-term opportunity cannot fully offset valuation pressure stemming from near-term operational challenges. The analyst likely believes that in an environment of increased macroeconomic and supply chain uncertainty, CoreWeave's growth path will be more "lumpy" than anticipated, requiring a higher risk premium. - For other high-growth but not yet profitable or inconsistently profitable AI companies, this could be a cautionary signal: the market's tolerance for "vision" is declining, while demands for "execution" and "short-term performance" are increasing. Investors should be wary of companies relying solely on future growth narratives without a solid operational foundation. How might sovereign demand for AI infrastructure (e.g., NASA and the UK government) alter the dynamics of the AI cloud market? - Government demand introduces a new, often more stable and well-funded customer segment into the AI cloud market. This not only provides new revenue streams but, crucially, may elevate AI infrastructure to a national strategic or even national security level, thereby securing preferential resource allocation and policy support. - However, serving government clients also entails higher compliance requirements, longer sales cycles, and potential regulatory scrutiny. This may compel companies to adapt their technical standards, data sovereignty, and security protocols, potentially impacting the flexibility of their business models to some extent. - In the long run, this sovereign demand could drive AI infrastructure providers to develop stronger federal-grade or sovereign-grade solutions, and potentially lead to the localization and nationalization of AI data centers and compute infrastructure within specific countries, thereby forming distinct regional ecosystems in global AI competition. This could bring stable growth for some companies but may also intensify technology barriers in a geopolitical context.