Is CoreWeave (CRWV) Stock a Buy After a 20% Drop? What JPMorgan Says

TLDR

• CoreWeave (CRWV) stock fell about 20% last week and slipped 0.44% on Monday.
• JPMorgan says the business model is sound and the debt fears are overdone.
• A typical five-year contract earns a mid-teens return, above the 9% to 11% cost of capital.
• Most global banks have limited exposure, with $1 billion to $3 billion at the largest.
• JPMorgan expects free cash flow to stay negative until 2030.

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CoreWeave (CRWV) stock slipped 0.44% on Monday, after a drop of about 20% last week. Rising bond yields raised doubts about its debt-funded growth.

CoreWeave, Inc. Class A Common Stock, CRWV

JPMorgan says those fears are overdone. Analysts led by Samik Chatterjee wrote in a Friday note that the business model is sound.

They point to strong demand for computing power and long-term take-or-pay contracts. Customers are locked in before new capacity comes online.

A Gartner forecast also weighed on the stock. It questioned whether AI revenue will be enough to support healthy returns on huge infrastructure spending.

JPMorgan Sees Healthy Contract Economics

JPMorgan estimates a typical five-year contract earns an unlevered internal rate of return in the mid-teens. That tops CoreWeave’s estimated blended cost of capital of 9% to 11%.

In a conservative case, capital spending is about 51% of a contract’s value. Roughly 80% of that is financed with asset-level debt.

After repaying the debt, CoreWeave could keep cash equal to about 16% of the contract value. That would cover about five years of data center obligations, even without a renewal.

The analysts also see another lever in recontracting GPUs after the five-year term. Each gigawatt of operating capacity could bring in $10 billion to $15 billion a year.

Adding a gigawatt costs more than $35 billion upfront. That is why cash flow stays under pressure for now.

“The cash burn is not a function of unfavorable economics per project,” the analysts wrote. They said it reflects how much capacity is added each year compared with what is already running.

JPMorgan says CoreWeave may not fund its growth from operations until 2030. By then, operating capacity should be four to five times its annual additions.

Banks Face Limited Exposure

In a separate note on Tuesday, JPMorgan said most global banks have limited exposure to CoreWeave. Analysts led by Kian Abouhossein called the exposure “well managed and very well secured.”

Large US investment banks and Japan’s MUFG could have about $1 billion to $3 billion at stake. Most European and Asian banks have less than $500 million.

Much of it sits in delayed draw term loans held through special-purpose vehicles. Capital is released as projects hit milestones.

CoreWeave has about $24 billion in committed delayed draw term loans, with $15 billion drawn and $9 billion undrawn. Its total debt is about $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 holds an overweight rating with a $125 price target for the end of 2027. It expects free cash flow to stay negative until 2030 and sees the gap between upfront spending and revenue as the key risk for banks.