Once-hot cloud AI play CoreWeave is tanking. A JPMorgan downgrade is adding to the pressure

JPMorgan downgraded CoreWeave, an AI infrastructure provider, to Neutral from Overweight and lowered its price target to $110 from $135, citing escalating near-term supply chain pressures. Despite reporting better-than-expected third-quarter revenue, the company's full-year guidance was below analyst expectations due to delays from a third-party data center developer, causing CoreWeave shares to drop 10% premarket. While the analyst remains fundamentally constructive on CoreWeave's long-term opportunity within the AI mega-trend, significant industry-wide supply chain uncertainties are expected to impact near-term revenue predictability.

Analysis

JPMorgan has downgraded CoreWeave (CRWV) to Neutral from Overweight, simultaneously lowering its price target to $110 from $135, indicating only 4% potential upside. This adjustment follows CoreWeave's third-quarter earnings, where despite exceeding revenue expectations, the company's full-year revenue guidance fell below analyst forecasts, prompting a 10% premarket share decline.

The primary driver for the downgrade is escalating near-term supply chain pressures, specifically a delay from a third-party data center developer, which is expected to shift some Q4 revenue. Analyst Mark Murphy highlighted that this issue, despite CEO Mike Intrator's assurances regarding the backlog, signals a spreading industry-wide phenomenon impacting even historically efficient AI infrastructure providers.

While Murphy maintains a fundamentally constructive long-term view on CoreWeave's opportunity within the AI mega-trend, he underscores the unprecedented and mounting industry-wide supply chain challenges. This uncertainty makes confident forecasting of near-term revenue trajectories difficult, even with potential revenue ramp recovery anticipated in Q1/Q2 next year.

Key Decisions for Investors

• Investors should closely monitor CoreWeave's progress in resolving its third-party data center developer delays and subsequent Q1/Q2 2024 guidance for signs of revenue recovery.
• Evaluate CoreWeave's current valuation relative to its reduced near-term growth prospects but significant long-term AI market opportunity, considering the 164% gain since its March IPO.
• Be prepared for continued share price volatility as industry-wide supply chain constraints persist, potentially impacting CoreWeave and other AI infrastructure providers.