CoreWeave's stock has been red hot. This analyst says investors shouldn't touch it.

MoffettNathanson analyst Nick Del Deo maintains a neutral rating on CoreWeave despite its 177% surge from its IPO price, citing that the stock's movement is not justified by fundamental improvements and is likely driven by a thin float and trading dynamics. While raising the price target to $56 from $43, the analyst advises investors to avoid the stock due to the high risks associated with trading its volatility and suggests the possibility of management conducting a convertible offering to capitalize on the inflated stock price.

Analysis

CoreWeave Inc.'s stock has surged 177% from its $40 initial public offering price, a rally that MoffettNathanson analyst Nick Del Deo attributes more to "trading dynamics" and a "thin float" rather than a significant improvement in the data-center company's fundamentals, resulting in a moderately negative and cautious analyst outlook. Despite positive developments such as an expanded deal with OpenAI, the analyst highlights that the stock's average daily volume post-earnings has been comparable to its float, a situation anticipated to shift once the company’s lockup expires this summer. While Del Deo maintains a neutral rating on CoreWeave, he increased his price target to $56 from $43; however, this remains substantially below the current trading price exceeding $100, prompting his advice that investors should "not touch this stock either way" due to the "exceptionally dangerous" nature of trading its current volatility and associated high risks. The analysis also points to a "distinct possibility" that CoreWeave's management might capitalize on the elevated stock price through a convertible offering or by using shares as currency for acquisitions, given their demonstrated "savviness with respect to capital-raising activities." Furthermore, the market's bullish interpretation of Nvidia Corp.'s disclosed 24.2 million share stake in CoreWeave, which led to a 22% stock increase, is contrasted with Del Deo's earlier deduction of this stake and his perspective that Nvidia's investment could have been a measure to support the IPO rather than a purely bullish signal.

Key Decisions for Investors

• Investors should exercise extreme caution with CoreWeave stock, acknowledging its significant price appreciation appears driven by technical factors like a thin float rather than fully supported fundamentals, aligning with the analyst's explicit advice to avoid involvement.
• Closely monitor the impact of the upcoming summer lockup expiry, as an increased float could alter trading dynamics, and remain vigilant for potential management actions such as equity offerings or M&A activity leveraging the current high stock valuation, which could be dilutive.
• Seriously consider the substantial valuation risk highlighted by the significant disparity between CoreWeave's current market price (above $100) and the analyst's $56 price target, suggesting the current valuation may not be sustainable based on fundamental analysis alone.