CoreWeave stock surged 6.3% in premarket trading on Monday after Goldman Sachs upgraded the artificial intelligence infrastructure company from Neutral to Buy, citing attractive upside potential following a sharp market selloff.
The investment bank believes investors may be exaggerating CoreWeave’s financing risks while overlooking the potential profitability of its expanding AI computing infrastructure.
Goldman Sachs analyst Gabriela Borges lowered her price target for CoreWeave shares to $106 from $139. Nevertheless, she maintained an optimistic outlook, suggesting that the recent decline has created a potentially attractive buying opportunity.
CoreWeave Stock Rebounds After 24% Weekly Selloff
The Goldman Sachs upgrade follows a difficult period for CoreWeave shareholders.
According to the investment bank, CoreWeave stock lost approximately 24% over the previous five trading sessions. Furthermore, shares have declined 43% since August 11, when the company released its second-quarter earnings results.
Several factors have contributed to the sharp correction, particularly concerns surrounding credit market volatility and the rising cost of financing CoreWeave’s infrastructure expansion.
Investors are also questioning the sustainability of demand for advanced artificial intelligence models.
Additionally, uncertainty surrounding future AI workloads has raised concerns about how effectively CoreWeave’s customers can generate revenue from their computing investments.
However, Goldman Sachs believes the market may be placing excessive emphasis on these risks.
Goldman Sachs Sees Strong Growth in AI Infrastructure Revenue
Despite the recent decline, Goldman Sachs expects CoreWeave’s computing infrastructure to generate improving financial returns over the next two years.
The bank anticipates an increase in annual recurring revenue per megawatt (ARR/MW), a key metric measuring how much recurring revenue the company generates from its installed computing capacity.
Several factors could support this improvement, including limited available AI computing infrastructure, competitive performance and operating costs, and CoreWeave’s ability to deploy additional capacity.
Borges also expects the company’s unlevered internal rate of return (IRR), which measures investment profitability before financing costs, to benefit from stronger revenue generation.
In particular, Goldman Sachs believes that CoreWeave’s revenue per megawatt and underlying investment returns could exceed current market expectations over the next 24 months.
CoreWeave’s Debt Financing Risks May Be Overestimated
Financing costs remain a major consideration for CoreWeave because expanding AI data center infrastructure requires substantial capital investment.
Borges expects the company’s blended borrowing costs to increase by approximately 100 to 200 basis points, equivalent to 1 to 2 percentage points.
However, discussions with credit market investors suggest that further increases could remain relatively limited.
Although CoreWeave’s unsecured debt has traded at yields to worst ranging from 13.5% to 15%, Goldman Sachs argues that these figures may exaggerate the company’s actual cost of obtaining new financing.
The distinction is important because CoreWeave relies primarily on asset-backed borrowing rather than unsecured debt to fund its operations and infrastructure investments.
Consequently, the borrowing rates observed in the unsecured debt market may not accurately represent the financing conditions available to the company.
Goldman Sachs believes investors are underestimating the potential improvement in returns generated by CoreWeave’s computing assets while overestimating the risks associated with rising borrowing costs.
Goldman Sachs Views CoreWeave Selloff as Buying Opportunity
The investment bank acknowledged that several uncertainties continue to surround the artificial intelligence infrastructure industry.
These include the difficulty of forecasting long-term AI computing demand, changes in infrastructure supply and the future residual value of expensive computing equipment.
Nevertheless, Goldman Sachs expects developments over the next 12 months to provide encouraging signals regarding CoreWeave’s financial performance and growth prospects.
The bank’s bullish assessment suggests that stronger revenue generation, improving investment returns and manageable financing expenses could help support a recovery in CoreWeave shares.
As a result, Goldman Sachs considers the recent CoreWeave stock correction a potential buying opportunity, despite reducing its price target to $106.
