Bernstein warns of looming growth problem facing CRWV
After CoreWeave (CRWV) signed a multi-year strategic partnership last week with Perplexity, an AI-powered search company backed by Jeff Bezos and Nvidia (NVDA), Citizens analyst Greg Miller said in a client note that investors needed to rethink how they view the neocloud company's volatile stock.
Miller pointed to contracted backlog growth that supports a strong demand outlook for the company, but said investor "expectations need to reset away from software-like economics toward a digital infrastructure framework for the stock to more accurately reflect the underlying demand for the company's services."
He noted that that earnings variability and margin volatility is to be expected with CoreWeave.
Under the agreement with Perplexity, CoreWeave will serve as a backend cloud partner for the company to run its next-generation inference workloads on NVIDIA GB200 NVL72 GPU clusters.
In addition to powering the inference workloads on the CoreWeave Cloud, the two companies are planning to pilot new services across both organizations.
But in a client note on Thursday, Bernstein SocGen Group initiated coverage of CRWV with an Underperform rating, calling the shares "meaningfully overvalued." The firm's take on CoreWeave's backlog was much different than Miller's, pointing out that the market is implying a $162 billion backlog versus a $66.8 billion current backlog, with $100 billion modeled by 2030.
While Bernstein acknowledged CoreWeave's strong execution and growth, the firm believes that "future demand and valuation assumptions are overly optimistic."
"We anticipate they will sign a few more buzzy, multi-billion dollar contracts through 2026-7 (we model $35B in incremental signings over the next two years)," the firm said. "But we’re worried about what happens when market capacity starts to ease."
Bernstein estimates that hyperscalers are building approximately 36GW of data center supply that will come online by the end of 2028, and many are also signing lease deals with traditional data center providers.
"With a plethora of options, we do not believe hyperscalers will be incentivized to sign further large contracts with CRWV," the firm said. "In fact, we believe hyperscalers are more likely to attempt head-on competition, going after GPU cloud business as the natural adjacency to traditional cloud, and cannibalizing CRWV’s market.
"We disagree with CRWV’s premise that the existing software moat will hold up to hyperscaler attacks in a slightly more mature market."
CRWV has 'unforgiving' capital structure
In the company's recent fourth-quarter and full year 2025 earnings call, CoreWeave president and CEO Michael Intrator said that "data center operators are very interested in working with CoreWeave" because they are seeking out “a diversified portfolio of tenants in their data centers.”
“They're looking to go ahead and get exposure to a company like CoreWeave that represents so much of the AI infrastructure that's gonna be ultimately delivered,” Intrator said. “And so they kind of look at us as a pure play way of really getting access to the scaling of artificial intelligence, and they want that exposure.”
He added that the company’s relationship with Nvidia (NVDA) is “accelerating our ability to get access to data centers.”
CoreWeave's business model is essentially centered around taking out large amounts of debt to buy Nvidia chips and then renting out computing capacity to customers.
But as it has built up a $14 billion debt load, its business model has come under increased scrutiny, especially with profits still years away.
Bernstein sees this business model as being another red flag for the company.
"If our thesis plays out, and CRWV’s growth trajectory slows, their existing capital structure is quite unforgiving, with high debt levels and limited room for sustained margin pressure," it said.
CRWV shares are up nearly 2% so far this year.