TLDR
- CoreWeave (CRWV) stock slipped 0.44% on Monday after falling about 20% last week.
- JPMorgan says the debt worries are overdone and the business model is sound.
- A typical five-year contract earns a mid-teens return, above a 9% to 11% cost of capital.
- Most global banks have limited exposure, with the largest holding $1 billion to $3 billion.
- JPMorgan expects free cash flow to stay negative until 2030.
CoreWeave (CRWV) stock edged down 0.44% on Monday. That follows a drop of about 20% last week.
CoreWeave, Inc. Class A Common Stock, CRWV
Rising bond yields drove the selloff as investors questioned the company’s debt-funded growth. A Gartner forecast added to the pressure.
Gartner asked whether AI revenue will be big enough to justify the huge spending on infrastructure. That worry hit the wider market, not just CoreWeave.
JPMorgan analysts, including Samik Chatterjee, pushed back in a Friday note. They say the debt concerns are overdone.
Their view is that fast expansion, not weak project returns, is behind the financing needs. Demand for computing power remains strong.
What JPMorgan Says About Contract Returns
CoreWeave signs long-term take-or-pay contracts before new capacity goes live. That locks in customers early.
JPMorgan estimates a typical five-year contract earns an unlevered return in the mid-teens. It puts the company’s blended cost of capital at 9% to 11%.
In a cautious scenario, capital spending is about 51% of a contract’s value. Roughly 80% of that is paid for with asset-level debt.
Once the debt is repaid, CoreWeave could keep cash equal to about 16% of the contract value. That would cover about five years of data center obligations without a renewal.
The analysts also see extra upside from recontracting GPUs after the five-year term. It is another way to earn money from the same hardware.
Each gigawatt of working capacity could bring in $10 billion to $15 billion a year. Adding one costs more than $35 billion upfront, which is a lot of concrete to pour before the checks arrive.
That gap explains the cash burn, the analysts say. They wrote that it comes from how much capacity is added each year compared with what already runs.
JPMorgan expects CoreWeave to lean on outside funding until about 2030. By then, operating capacity should be four to five times its annual additions.
Bank Exposure Looks Limited
On Tuesday, a second JPMorgan note led by Kian Abouhossein looked at the lenders. It says most global banks have limited exposure.
Large US investment banks and Japan’s MUFG could hold about $1 billion to $3 billion. Most European and Asian banks sit below $500 million.
Much of that is delayed draw term loans held through special-purpose vehicles. Money is released as projects reach milestones.
CoreWeave has about $24 billion in committed loans of this type, with $15 billion drawn. Its total debt is near $50 billion.
Last week, the yield on its notes due 2031 touched almost 16%. The cost of insuring its debt rose to around 1,000 basis points.
JPMorgan rates the stock overweight with a $125 target for the end of 2027. It expects free cash flow to stay negative until 2030 and calls the gap between upfront spending and later revenue the key risk for banks.
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