HSBC States OpenAI Has Not Granted CoreWeave (CRWV) A “Material Cash Advance” Despite $15 Billion Commitment

This article does not constitute investment advice. The author does not hold any positions in the stocks discussed.

CoreWeave’s Financial Outlook: HSBC’s Concerns

According to recent assessments by HSBC, CoreWeave’s liquidity appears to be under pressure. This situation is partly attributed to the company’s inability to secure the expected $15 billion cash commitment from OpenAI.

Understanding CoreWeave’s Market Position

For those unfamiliar, CoreWeave operates as a prominent cloud-based GPU-as-a-Service provider. The company stands out due to its capacity to offer early access to NVIDIA’s cutting-edge products, bolstered by a strategic partnership that allows for large-scale distribution.

HSBC’s Caution Amidst Market Hype

Despite the rising excitement around CoreWeave’s stock, which currently trades around $143, HSBC has opted to take a more cautious stance. They’ve assigned a “Reduce”rating with a price target of $32, indicating a potential downside of nearly 77%.

Market Dynamics Influencing Returns

Analyst Abishek Shukla at HSBC notes that the GPU cloud market is increasingly being viewed as commoditized, resulting in diminished profit margins. This trend can be traced back to the market’s relatively low entry barriers and less stringent technological requirements compared to general-purpose cloud services.

NVIDIA’s Role in the Evolving Landscape

In response to these challenges, NVIDIA is actively supporting emerging GPU-as-a-Service providers like CoreWeave through investments, early GPU allocations, and marketing assistance.

CoreWeave’s Asset Efficiency and Return Challenges

Reflecting these difficulties, Shukla cites CoreWeave’s asset turnover for Q1 2025 as a mere 32%, significantly lower than hyperscalers like Amazon AWS, which boasts around 76%.This disparity underlines the challenges of generating returns in the current environment.

CapEx and Revenue Insights

Furthermore, Shukla points out that every dollar spent by Amazon AWS on GPUs since Q2 2023 has yielded only $0.37 in incremental annual revenue, further illustrating the low return profile endemic to GPU cloud services. This cornerstone forms the basis of HSBC’s caution regarding CoreWeave.

Strategic Recommendations for CoreWeave

To enhance its return potential, Shukla suggests that CoreWeave may need to shift towards general-purpose cloud computing while expanding its offering of value-added services, leveraging its proprietary software stack.

It is also recommended that CoreWeave diversify its customer base, moving away from heavy reliance on Microsoft and OpenAI, which currently account for 72% of its revenue and substantial order backlog for Q1 2025. Building relationships with general-purpose compute customers willing to adopt more of its software will be crucial.

Liquidity and Cost Implications

Shukla categorizes CoreWeave’s liquidity as “stretched, ”citing high energy costs and data center rental expenses, which made up 6.1% and 16.4% of its Q1 2025 revenue, respectively. As new data center deals emerge, these costs are expected to escalate.

A key issue identified is that OpenAI has not made a significant cash advance, despite its pledge of over $15 billion for services.

Revenue Model and Customer Commitments

Notably, CoreWeave utilizes a take-or-pay operational model, generating predictable cash flow irrespective of customers’ usage levels. Approximately 96% of its revenue derives from committed contracts.

Additionally, CoreWeave requires upfront payments from customers, which are essential for funding the necessary infrastructure to fulfill contractual obligations.

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