CRWV

When BlackRock added to its position recently, I decided to deig deeper and run my own calculations on Coreweave. The $22 Billion Question: Can CoreWeave Justify GPU Infrastructure's Most Audacious Valuation? Let’s dive in.

Current Price: $120 | Market Cap: $68.8B | Enterprise Value: $87.0B

CoreWeave has emerged as one of 2025's most polarizing stocks, delivering explosive revenue growth of 207% YoY in Q2 2025 while simultaneously carrying one of the highest debt loads in enterprise software at $21.5 billion. At the current price of $120 per share, the market is making extraordinary assumptions about the company's future—assumptions that warrant careful scrutiny.

Our inverse DCF analysis reveals that the current valuation implies:

• A 10-year revenue CAGR of 27%, from $5.3B (2025) to $64.5B (2035)

• Operating margin expansion from 15.4% to 35% over the next decade

• A perpetual terminal growth rate of 9.1%—well above GDP growth and typical mature-company assumptions

The critical question for investors: Can CoreWeave deliver on these aggressive expectations, or is the market pricing in a best-case scenario that leaves little room for error?

Company Overview: The AI Infrastructure Play

CoreWeave operates at the intersection of two powerful secular trends: the buildout of AI computing infrastructure and the shift toward specialized cloud services. Unlike traditional hyperscalers (AWS, Azure, GCP), CoreWeave focuses exclusively on GPU-accelerated computing, positioning itself as the "AI Hyperscaler."

Business Model:

• Builds and operates data centers optimized for AI workloads

• Purchases massive quantities of Nvidia GPUs (predominantly the latest architectures)

• Rents GPU capacity to enterprises, AI labs, and hyperscalers themselves

• Differentiates through faster deployment cycles and specialized expertise in AI infrastructure

Key Competitive Advantages:

1. Early mover status in purpose-built AI infrastructure

2. Close partnership with Nvidia (which owns ~5% of outstanding shares)

3. Proven ability to deploy capacity at scale faster than traditional cloud providers

4. Technical expertise in optimizing GPU clusters for both training and inference workloads

Q2 2025 Results: Spectacular Growth, Mounting Concerns

The Good: Revenue Execution Remains Extraordinary

CoreWeave's Q2 2025 results showcased the kind of hypergrowth rarely seen in software:

• Revenue: $1.21B (+207% YoY), beating consensus by 11.8%

• Revenue Backlog: $30.1B, up from $25.9B in Q1

• Contracted Power: 2.2 GW, up 600 MW QoQ

• Adjusted EBITDA: $759M (62.6% margin)

The company raised full-year 2025 guidance to $5.15-5.35B (mid-point: $5.25B), representing 175% growth at the mid-point. Management expressed confidence in exiting the year with over 900 MW of active power.

The Less Good: Profitability Challenges and Capital Intensity

Despite impressive top-line growth, several metrics raised concerns:

1. Operating Income: $200M (16.5% margin) came in well below the revenue beat magnitude

2. Q3 Operating Margin Guidance: 13.7%, missing consensus at 15.8%

3. Net Loss: $291M in Q2, raising questions about the path to profitability

4. CapEx Timing: $2.9B in Q2 capex came in light of guidance, with the company holding full-year targets unchanged at $20-23B—implying a massive Q4 ramp to $13-15B

Morgan Stanley analysts noted: "The delivery of Powered Data Center shells appears to be the main rate limiter of expanding capacity and the timing of the capital expenditures."

Customer Concentration: The Double-Edged Sword

Q2 results revealed that Microsoft accounted for 70% of revenue—an extraordinary concentration even by software standards. While CoreWeave expanded agreements with both Microsoft and Google, and added a $4B OpenAI deal in Q2, the customer concentration presents both validation and risk:

Validation: The most sophisticated AI operators trust CoreWeave with their most demanding workloads.

Risk: Limited diversification means CoreWeave's fate is tied to a handful of customers who could potentially in-house capacity over time.

September 2025 Developments: Deal Momentum Continues

$6.3 Billion Nvidia Agreement (September 16)

CoreWeave disclosed a significant amendment to its Master Services Agreement with Nvidia, valued at $6.3 billion. The deal includes a critical backstop provision: Nvidia is obligated to purchase any residual unsold capacity through April 2032.

This arrangement serves multiple strategic purposes:

• Provides revenue certainty for CoreWeave's massive capex investments

• Demonstrates Nvidia's confidence in CoreWeave's execution

• Offers capacity insurance against potential demand shortfalls

• Strengthens the already tight relationship between the companies

Analysts at Barclays noted: "We see this as a positive for CoreWeave given concerns from investors around the company's ability to fill data center capacity beyond its two largest customers."

$6.5 Billion OpenAI Expansion (September 25)

Just nine days later, CoreWeave announced an additional $6.5B agreement with OpenAI, bringing total commitments from the ChatGPT maker to $22.4 billion across multiple contracts:

• March 2025: $11.9B initial agreement

• May 2025: $4.0B expansion

• September 2025: $6.5B latest expansion

The deals underscore OpenAI's massive computing needs as it trains next-generation models and scales inference workloads. However, they also deepen CoreWeave's concentration risk.

Market Reaction: Volatility and Skepticism

Despite the positive headlines, CRWV shares fell 5% initially on the OpenAI announcement before recovering. The stock has experienced extreme volatility:

• Peak: $187 in June 2025 (nearly 5x IPO price)

• Trough: ~$90 in August (down 51% from peak)

• Current: $120 (September 27, 2025)

Wells Fargo upgraded the stock to Overweight with a $170 price target, arguing "demand signals are growing too strong to ignore." Conversely, some analysts express concern about the sustainability of the business model and customer concentration.

The Inverse DCF: Dissecting Market Expectations

Methodology and Assumptions

To understand what the market is pricing in at $120 per share, we constructed an inverse discounted cash flow model working backward from the current valuation. Our approach:

1. Enterprise Value Calculation:

   • Market Cap: $68.8B (573M shares × $120)

   • Net Debt: $18.3B ($21.5B debt - $3.2B cash)

   • Enterprise Value: $87.0B

2. WACC Assumption: 12% (reflecting high growth, significant debt, and execution risk)

3. Revenue Projections: Based on Morgan Stanley's detailed model through 2027, then extended using reasonable assumptions

4. Operating Margin Path: Following MS projections through 2027, then assuming steady progression to 35% by 2035

What $120 Implies: Three Critical Dimensions

1. Implied Growth Rates

At the current price, the market expects CoreWeave to achieve:

This represents a 10-year revenue CAGR of 27%—a remarkably sustained growth rate that would place CoreWeave among the fastest-growing infrastructure companies in history.

2. Implied Margin Expansion

The current valuation assumes operating margins will expand by 2,000 basis points over the next decade, from 15.4% to 35%. This improvement must come from:

• Economies of scale in data center operations

• Leverage on technology and infrastructure spend (currently 52% of revenue)

• Pricing power maintenance despite competition

• Efficiency gains in GPU utilization and power management

For context, mature cloud infrastructure providers like AWS achieve operating margins in the 25-30% range. CoreWeave would need to exceed these levels despite higher capital intensity.

3. Implied Terminal Value Assumptions

Most revealingly, our analysis shows that at $120, the market is pricing in a perpetual terminal growth rate of 9.1%. This is well above:

• Long-term GDP growth (~3-4%)

• Inflation expectations (~2-3%)

• Typical mature company terminal growth rates (2-4%)

What This Means: The 9.1% terminal growth assumption implies CoreWeave will maintain competitive advantages and growth opportunities far into the future—essentially pricing in a "forever growth" scenario that defies the typical trajectory of infrastructure businesses.

Valuation Sensitivity Analysis

To understand how sensitive the valuation is to these assumptions, we modeled fair value at different terminal growth rates:

Key Insight: If CoreWeave achieves our projected operating performance through 2035 but then grows at a more conservative 5% perpetually (still above GDP), the fair value drops to $45—62% below the current price.

Conversely, if the company can sustain 8% long-term growth (doubling the economy every 9 years), fair value rises to $86—28% below current levels but within striking distance.

Multiple-Based Perspective

We can also evaluate the implied valuation multiples:

Forward Revenue Multiples:

• EV/2025E Revenue: 16.6x

• EV/2026E Revenue: 7.4x

• EV/2027E Revenue: 5.3x

Forward EBIT Multiples:

• EV/2025E EBIT: 107.7x

• EV/2026E EBIT: 32.4x

• EV/2027E EBIT: 19.8x

The 2027E EBIT multiple of 19.8x appears reasonable for a high-growth infrastructure company, but it requires flawless execution on both revenue growth and margin expansion. Any stumble on either dimension would leave the stock vulnerable.

Price Sensitivity at Different Levels

Investment Risks: What Could Go Wrong?

1. Customer Concentration Risk

With Microsoft representing 70% of Q2 revenue and OpenAI/Nvidia deals dominating the backlog, CoreWeave faces existential concentration risk. If any major customer decides to in-house capacity or reduces usage, the impact would be severe.

Microsoft's Public Cloud Ambitions: The hyperscaler has been aggressively building its own AI infrastructure. While it currently uses CoreWeave for overflow capacity, long-term reliance on a third party seems inconsistent with Microsoft's strategic interests.

OpenAI's Infrastructure Plans: OpenAI announced the $500B "Stargate" project to build massive AI infrastructure. While CoreWeave is involved, the scale suggests OpenAI is also looking to own more of its infrastructure stack.

2. Capital Structure and Profitability Concerns

CoreWeave's $21.5B debt load, combined with aggressive capex plans ($20-23B in 2025 alone), creates significant financial risk:

• Interest Expense: Exceeded $500M in Q2, consuming 42% of revenue

• Negative Free Cash Flow: $(2.7B) in Q2; full-year expected at $(15.6B)

• Refinancing Risk: Much of the debt will need to be refinanced in coming years, exposing the company to interest rate and credit market conditions

Morgan Stanley notes: "With the management team expressing conviction on exiting the year with >900 MW of active power, these back-half estimates may well again prove conservative. Despite the higher revenues, there was no change to management's targets on adjusted operating profit."

The disconnect between rising revenues and flat profit guidance raises questions about the incremental economics of new capacity.

3. GPU Useful Life Uncertainty

CoreWeave's business model depends on depreciating GPU assets over 5-6 years. However, the AI chip landscape is evolving rapidly:

• Nvidia releases new architectures annually, potentially obsoleting older GPUs faster

• Customers may demand latest-generation chips, leaving older capacity underutilized

• If useful life proves shorter than 5-6 years, depreciation expense would surge, crushing profitability

4. Competitive Dynamics

While currently supply-constrained, the AI infrastructure market is attracting massive investment:

• Hyperscalers expanding GPU capacity aggressively

• Nebius Group pursuing similar strategy to CoreWeave

• Oracle/OCI partnering directly with AI companies

• Specialized startups emerging with differentiated approaches

As supply catches up with demand, pricing power could erode, compressing margins below expectations.

5. Execution Risk on Unprecedented Capex

CoreWeave plans to deploy $20-23B in capex in 2025—an almost unfathomable amount for a company that generated $1.9B in revenue in 2024. The company must:

• Secure and energize massive amounts of data center space

• Coordinate deliveries of hundreds of thousands of GPUs

• Manage complex construction and installation projects

• Maintain customer relationships while scaling aggressively

Any delays or cost overruns would impair returns and potentially breach debt covenants.

Bull Case: Why CoreWeave Could Exceed Expectations

1. Structural Position in the AI Value Chain

CoreWeave occupies a critical node between chip manufacturers (Nvidia) and AI developers (OpenAI, hyperscalers). If AI continues its exponential growth trajectory, CoreWeave's position as the fastest deployer of GPU capacity becomes increasingly valuable.

2. Inference Workload Opportunity

Management emphasized "strong momentum in inference use cases" on the Q2 call. Inference (running trained models) is:

• Growing faster than training as AI applications proliferate

• More margin-attractive due to higher utilization rates

• Less cyclical than training, which concentrates around model releases

If CoreWeave captures significant inference share, margins could exceed expectations.

3. Software and Platform Value

Recent acquisitions (Weights & Biases, OpenPipe) and new capabilities suggest CoreWeave is building beyond commodity GPU rental:

• MLOps and experiment tracking tools

• Reinforcement learning capabilities

• Enhanced developer tools and APIs

If successful, these additions could reduce customer churn and support pricing power.

4. Supply Constraints Persisting Longer

OpenAI CEO Sam Altman recently stated: "The compute constraints have been terrible. We're so limited right now in the services we can offer." If supply constraints extend into 2026-2027, CoreWeave's existing capacity commands premium pricing.

5. M&A Value Creation

The proposed Core Scientific acquisition (announced July 2025) could provide:

• Additional 300-400 MW of power capacity

• Vertical integration into power and data center shells

• Cost synergies in construction and operations

Investment Framework for Fund Managers

Position Sizing Considerations

Given the binary nature of outcomes, CoreWeave merits careful position sizing:

For Growth-Oriented Funds:

• CoreWeave offers asymmetric upside if AI infrastructure demand continues to surprise

• The stock could trade to $180-200 if the company executes and competition remains limited

• Position size: 2-5% for high-conviction growth portfolios

For Balanced Funds:

• The risk/reward at $120 appears skewed to the downside given aggressive market assumptions

• Better entry points likely emerge if the stock retraces to $80-100 range

• Position size: 0-2% with defined entry points

For Value-Oriented Funds:

• Current valuation offers minimal margin of safety

• Multiple compression risk if growth disappoints or margins fail to expand

• Position size: 0%, wait for better risk/reward

Key Monitoring Points

Active investors should track these metrics quarterly:

1. Customer Diversification: Revenue from customers beyond Microsoft/OpenAI

2. Incremental Margins: Profitability of new capacity as it comes online

3. Capex Efficiency: Revenue per dollar of invested capital

4. Backlog Quality: Duration, pricing terms, and cancellation provisions

5. Competitive Positioning: Win rates against hyperscalers and Nebius

Scenarios and Target Prices

Bull Case ($180-200):

• Revenue exceeds guidance by 10-15% through 2026

• Operating margins reach 30% by 2027

• Customer base diversifies to <50% concentration

• Terminal growth assumptions of 7-8% justified

• Probability: 25%

Base Case ($90-120):

• Revenue meets current Street expectations

• Margins expand to 25-27% by 2027

• Customer concentration remains elevated but stable

• Terminal growth of 5-6%

• Probability: 50%

Bear Case ($40-60):

• Revenue growth decelerates to 40-50% by 2026

• Margins stall at 20% due to competition

• Microsoft/OpenAI reduce commitments

• Terminal growth of 3-4% or lower

• Probability: 25%

Expected Value: $99 per share (21% downside from current $120)

Conclusion: A Speculative Growth Story at Full Price

CoreWeave represents one of the purest plays on AI infrastructure buildout, with exceptional execution to date and massive contracts from blue-chip customers. However, at $120 per share, the market is pricing in nearly perfect execution across multiple dimensions:

1. Sustained 25%+ revenue growth for the next decade

2. Operating margin expansion to best-in-class 35% levels

3. Perpetual growth of 9%—triple typical GDP growth rates

4. No competitive threats materially impacting pricing or utilization

For sophisticated investors, the question isn't whether CoreWeave is a quality business (it likely is), but whether the current price offers adequate compensation for the myriad execution risks.

Our View: At $120, CoreWeave is a speculative growth story priced for perfection. The inverse DCF analysis reveals that even modest adjustments to terminal assumptions—moving from 9.1% to 5% perpetual growth—implies 62% downside. Conversely, if CoreWeave executes flawlessly and sustains competitive advantages beyond base expectations, 50% upside exists.

For most investors, patience is warranted. Better risk/reward entry points likely emerge at $80-100, where valuation multiples compress to 4-6x 2027E revenue and margin expansion assumptions become more conservative.

For those with high conviction in sustained AI infrastructure shortage, CoreWeave merits a modest position (2-3% of portfolio), sized for the binary nature of outcomes.

The next 12-18 months will be critical. Customer diversification, incremental margin performance, and successful execution of unprecedented capex will determine whether CoreWeave fulfills the lofty expectations embedded in today's valuation—or whether the market has priced in a future that proves difficult to deliver. Right now it sits on my watchlist, which you can access in real-time in our community.

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