On January 16, a research team led by Mark R. Murphy at JPMorgan Chase published a report stating that CoreWeave is on the cusp of explosive demand growth, but investors should be wary of its highly leveraged business model and execution risks. The report summarized key signals conveyed by the company's management during a recent investor meeting: demand for AI computing power is so robust that it has become "unsolvable," clients are locking in longer-term contracts (5-6 years), and they are willing to commit 12 months or more in advance. CoreWeave boasts an order backlog of approximately $56 billion, with its 2026 capacity already largely allocated. However, this rapid growth is accompanied by massive capital expenditure requirements and a complex financing structure, with the company needing to deploy $27.296 billion in capital expenditures by 2026. JPMorgan Chase maintains a Neutral rating on CoreWeave, setting a 12-month price target of $110, based on a valuation of roughly 33 times adjusted EBIT for 2026. This multiple represents a premium compared to the peer average valuation of 31 times. The report acknowledges that this premium reflects the company's high-growth prospects and differentiated market positioning, with its capabilities already endorsed by top-tier clients like OpenAI, Microsoft, and NVIDIA. However, the premium is partially offset by its high debt load and the significant execution risk necessary to support the enormous capital spending. The report emphasizes that for investors with lower risk tolerance, this will be a "bumpy journey."
AI Compute Shortage: Demand Continues to Overwhelm Supply CoreWeave's management used an exceptionally strong term at the investor meeting to describe the current market condition: the demand for computing power in the AI field is "unsolvable." This statement underscores a severe limitation of AI-related computational capacity relative to customer purchasing intent. The report points to two major shifts in client behavior that confirm this supply-demand imbalance:
Contract durations are significantly lengthening: Clients are extending contract terms from about 3 years to 5-6 years, further supporting the rationale for a 6-year depreciation cycle for GPUs. Locking in capacity earlier: The lead time for signing contracts has extended from 3 months before infrastructure goes live to 12 months or longer. Clients are willing to commit to capacity much further into the future.
Notably, although the lead time for signing contracts has increased, this does not mean CoreWeave will deploy capital earlier. Once active power is secured from data centers, the company still expects to be able to convert facilities into revenue-generating GPU compute capacity within 4-6 weeks, a turnaround time that is industry-leading.
Capacity Expansion: 2025 Target in Sight, 2027 is Key
JPMorgan analysts believe CoreWeave is on track to achieve its goal of approximately 850MW of active power by the end of 2025. More importantly, available capacity for 2026 is already largely allocated, either reflected in the ~$56 billion order backlog or subject to late-stage pipeline discussions with clients. The majority of the company's currently unallocated capacity is concentrated in 2027, and potential orders for this 2027 capacity are already clearly identified. Given clients' willingness to sign contracts with longer delivery cycles, the conversion of orders for 2027 capacity could begin as early as the first half of 2026. The report notes that these dynamics reinforce the strength and long-term nature of demand, viewed as positive factors improving the visibility of CoreWeave's business.
Financing Strategy: Asset Financing Dominates
CoreWeave's capital-intensive business model is supported by a complex financing strategy. The company stated that 90% of its capital expenditures are supported by asset financing rather than debt financing at the parent company level. This implies that changes in the parent company's credit profile have a lesser impact on most of its financing capacity. The report indicates the company has been able to raise debt at favorable rates and expects this trend to continue. In the future, some contracts might even be financed at the asset level based on revenue and cash flows, potentially increasing the loan-to-cost ratio from an implied ~90% to around 120%. Furthermore, the delays in data center construction mentioned in the Q3 earnings report, attributed to third-party developers, are now progressing in line with updated guidance. The report adds that CoreWeave's management proactively manages construction timelines, including building buffer time into completion targets for third-party contracts to account for potential variances or delays. The report suggests the market may be underestimating the complexity of building AI data centers at scale in an extremely short timeframe, with the primary current constraints being supply chain challenges like labor, which is an industry-wide issue.
A Risk List That Cannot Be Ignored The report analyzes CoreWeave's potential risks. First is high customer concentration: a significant portion of revenue comes from a limited number of clients, and nearly all recent growth has come from expansion within existing customers. Second is supplier dependence: in 2024, all GPUs were sourced from NVIDIA, with the top three suppliers accounting for the bulk of procurement. Third is the ongoing need for substantial capital expenditure and debt; any deterioration in financing ability would directly impact growth and cash flow. Finally, there are macroeconomic fluctuations. The report warns that any sustained macroeconomic headwinds could prompt buyers to delay purchases. As a cloud service provider requiring significant investment from its customers, CoreWeave could be disproportionately impacted. In the event of economic volatility, its stock price might suffer significantly due to risk-off sentiment. JPMorgan emphasizes that CoreWeave operates in the most certain infrastructure segment of the AI wave, with demand signals so strong they are causing a paradigm shift in client behavior, while its execution capabilities and financing innovation make it a top player. However, this high growth is underpinned by extreme financial leverage, customer concentration, and macroeconomic sensitivity. This is a story in which only investors with a specific risk appetite should participate.
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