HSBC Downgrades CoreWeave, Citing 76% Price Drop, Low Returns

HSBC has downgraded its rating for CoreWeave, an artificial intelligence cloud service provider, setting a target price of $32, which is 76% lower than the closing price on Thursday. The reasons cited include low returns, lack of differentiation, and excessive reliance on Microsoft and NVIDIA.

According to the report by HSBC analysts led by Abhishek Shukla, CoreWeave's current business model, which focuses on providing cloud services, may not be sufficient to achieve higher returns. The analysts suggest that CoreWeave needs to transition into a more comprehensive cloud computing service provider, similar to general-purpose cloud service providers, and expand its customer base beyond Microsoft and OpenAI. Currently, Microsoft and OpenAI account for over 72% of CoreWeave's revenue and a significant portion of its order backlog.

HSBC analysts also predict that due to the aging of GPUs, CoreWeave will need to allocate approximately 35% of its revenue to maintenance capital expenditures starting from 2030. This will negatively impact the company's free cash flow. The analysts further note that market expectations for CoreWeave's long-term non-GAAP EBITDA and operating profit margins are significantly overestimated, while the implied interest rate on the company's debt is underestimated.

HSBC highlights that CoreWeave's over-reliance on Microsoft as a client and NVIDIA as a GPU supplier poses a significant long-term risk. Since NVIDIA is CoreWeave's sole GPU supplier, the company has limited negotiating power. HSBC analysts believe that NVIDIA may support competitors to traditional hyperscale cloud service providers to enhance competition in the GPU rental market.

Additionally, CoreWeave's lack of negotiating power with Microsoft is another concern. Microsoft contributed over 70% of CoreWeave's revenue in the first quarter of 2025. HSBC analysts suggest that Microsoft's decision to rent GPUs from CoreWeave is largely due to the market shortage of GPUs. As the supply of GPUs improves, Microsoft is likely to purchase more GPUs directly, reducing its reliance on CoreWeave for GPU rentals. However, the analysts also note that CoreWeave's reliance on a few key clients results in relatively lower sales and marketing costs.