There are better ways to invest in AI infrastructure than CoreWeave Inc (NASDAQ: CRWV), says Ben Reitzes. He’s a senior analyst at Melius Research.
Two other “elite” options that offer more stability and are significantly cleaner compared to CRWV are Nvidia and Broadcom, he said in an interview with CNBC this morning.
Reitzes’ remarks arrive a day after CoreWeave reported a more than 400% year-on-year growth in its revenue to about $982 million for Q1.
At the time of writing, CRWV shares are going for nearly twice their price on April 21st.
Why is Reitzes cautious on CoreWeave stock?
On “Squawk on the Street”, the Melius analyst agreed that CoreWeave is an exciting name that’s benefiting from continued demand for AI infrastructure.
However, for those interested in meaningful exposure to that market, it simply “doesn’t get better” than NVDA and AVGO, he added.
Reitzes touted Jensen Huang and Hock Tan as “excellent operators” during the interview, adding that the two companies have strong, well-diversified revenue streams that warrant an investment.
Note that Nvidia, in particular, has recently secured multi-year deals from Saudi Arabia and the United Arab Emirates that offer even better visibility into its future revenue growth.
The AI stock is currently down some 10% versus its year-to-date high.
CRWV expects negative free cash flow of $19 billion
CoreWeave sees its revenue more than quadrupling to $5 billion this year – but expects that growth to come at a hefty cost.
According to Michael Intrator, the company’s chief executive, capital expenditures will likely fall between $20 billion and $23 billion, leading to a negative free cash flow of $19 billion in 2025.
The AI infrastructure firm’s capital expenditure plans bank heavily on terminal growth, but “you just don’t know” if that growth will actually materialize, Ben Reitz said in an interview with CNBC.
Note that CoreWeave’s net loss more than doubled to about $315 million in the first quarter, leading to a net loss margin of 32%.
All of these concerns are absent in case of Nvidia and Broadcom Inc that further makes them better picks to play AI infrastructure than CRWV shares in 2025.
CRWV doesn’t have diversified streams of revenue
Another significant problem with CoreWeave is its overreliance on a single client for revenue.
In 2024, Microsoft accounted for about 62% of the company’s revenue.
On the plus side, the artificial intelligence company signed a five-year agreement with OpenAI in Q1 worth nearly $12 billion.
Still, Melius Research currently has a $67 price target on CRWV stock, which is roughly the same price at which it’s trading already.
Other Wall Street analysts agree with Melius’ cautious view on CoreWeave shares as well.
While the consensus rating on the AI stock currently sits at “overweight”, the mean target of $60 indicates potential downside of more than 10% from here.
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