DA Davidson: CoreWeave's equity 'likely worthless long-term'

Although CoreWeave (CRWV) went public in 2025 with one of the most hyped tech IPOs in years, the honeymoon didn't really last that long.

The IPO in March did end up being the largest since 2021, but a last-minute decision to lower the price target of the offering meant that it fell well short of the $2.7 billion it initially hoped to raise and a far cry from the $4 billion some expected.

But the real issues for CoreWeave came later in the year, as Wall Street began to signal that is was growing concerned about the neocloud firm's debt-fueled business strategy.

The company's debt load sits at about $14 billion. Its business model is essentially centered around taking out large amounts of debt to buy Nvidia (NVDA) chips and then renting out computing capacity to customers.

During the company's third-quarter earnings call last month, CoreWeave CFO Nitin Agrawal said that its capex in 2026 will "be well in excess of double that of 2025." He noted that CoreWeave's capex for 2025 will be in the range of $12 billion to $14 billion, which could put its expenditures next year close to $30 billion.

The problem, of course, is that profits are still years away for CoreWeave.

In a client note on Monday, DA Davidson analysts, led by Gil Luria, upgraded CoreWeave's stock to Neutral from Underperform, while raising their price target nearly 89% to $68 from $36.

Everything rides on OpenAI's $100B fundraising campaign

However, DA Davidson's upgrade came with one really big caveat.

CoreWeave has a $22.4 billion deal with OpenAI, and in a report in November, Nick Del Deo, analyst at MoffettNathanson, said that OpenAI "should grow to become CoreWeave's biggest customer as its backlog is installed."

Except, despite all the hype that has been surrounding OpenAI, the company is suffering massive losses and is still deeply unprofitable.

The company is set to spend $1.4 trillion over the next eight years with no clear path to generating the kind of revenue to make up for that kind of massive expenditure.

This reality sent Oracle's (ORCLE) stock crashing 40% last year as investors began to realize that the $300 billion deal it inked with OpenAI might've handcuffed it to a customer that might not have the money to pay for data center capacity.

And the same risk could be facing CoreWeave. In his client note, Luria noted that the only reason he was upgrading CoreWeave's stock was because of OpenAI's reported plan to raise up to $100 billion in what could be its own blockbuster IPO this year.

"While we believe that a successful $100bn fundraise by OpenAI is not a foregone conclusion, it now serves as a potential positive catalyst for CRWV if completed," Luria wrote. "Such a fundraise would allow OpenAI to live up to all its commitments in 2026, including to CRWV."

But Luria cautioned that while it's possible CoreWeave could see "short-term relief," he added that the "long-term outlook remains dire."

He notes that the value of CoreWeave's equity is "still seen as worthless long-term" because "the entire value of the enterprise is owned by debt holders."

In fact, he sees "value destruction inherent in CRWV's business" because of its massive debt load.

This means that "if OpenAl's fundraise falls sufficiently short of the $100bn goal by the end of March, we could see an acceleration of the collapse in the value of CRWV shares, which is why we would continue to steer investors away," Luria said.