Nvidia-backed AI cloud company CoreWeave (CRWV) stock has soared over 100% since its IPO in March as investors' hopes for the AI boom outweigh concerns over what some analysts say is a risky business model.

Over the same time frame, the S&P 500 gained a much more modest 7%. CoreWeave is one of the largest holders of Nvidia's graphics processing units (GPUs) and rents its data center capacity to Big Tech firms such as Microsoft (MSFT) and Meta (META) as they scramble to power their AI ambitions.

Nvidia (NVDA) holds a 7% stake in CoreWeave, according to the AI chipmaker's filing to the SEC Thursday. In addition to backing the company, Nvidia both sells chips to and buys data center capacity from CoreWeave.

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CoreWeave reported its first quarterly earnings results as a public company this week, featuring soaring revenue for the three months ending March 31 and a bullish revenue outlook for the year, far ahead of Wall Street's expectations, on a $4 billion deal with ChatGPT maker OpenAI. However, the stock dropped after the earnings call, dragged down by a higher-than-anticipated outlook for capital expenditures.

Wall Street analysts maintained their optimism for CoreWeave stock following its earnings. Jefferies analyst Brent Thill, who holds a Buy rating on the stock, raised his price target on shares to $80 from $51 Thursday, citing "insatiable demand."

Macquarie analyst Paul Golding raised his price outlook to $65 from $56. He said in a note that CoreWeave's outlook "highlights the ever-accelerating nature of AI demand, along with CoreWeave's agility in responding to this."

Meanwhile, Morgan Stanley analyst Keith Weiss, who has an Equal-weight rating on the stock, said in a note that "accruing large contracts from the most demanding GenAI users provides strong validation of CoreWeave's strong positioning." He raised his price target to $58 from $46.

Other analysts remain skeptical.

DA Davidson analyst Gil Luria downgraded CoreWeave to an Underperform on Thursday, citing its $23 billion capital expenditure forecast for 2025, just as it projects much less (around $5 billion) in revenue.

Luria told Yahoo Finance in an interview this week that CoreWeave's capital structure is "very risky," as the company uses debt financing, borrowed against its depreciating store of prior-generation Nvidia Hopper AI chips, to purchase more of the latest Nvidia chips to stay competitive in the AI data center market. CoreWeave has a significant amount of debt — roughly $12 billion worth of debt commitments with very high interest rates, according to Luria. Its interest expenses are only getting higher, jumping roughly 550% to $264 million in the first quarter from the prior year.

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A CoreWeave spokesperson told Yahoo Finance: “CoreWeave’s capex and debt structures are strategically aligned with long-term, committed customer contracts – clear evidence of the powerful demand signals it’s receiving from clients, and provide the company with strong revenue visibility and attractive unit economics."Michael Intrator, founder and CEO of CoreWeave, an Nvidia-backed cloud services provider, reacts during the company's IPO at the Nasdaq Market in New York City on March 28. (Reuters/Brendan McDermid)·REUTERS / Reuters

CoreWeave is also heavily reliant on only a few customers. In a filing on Thursday, it said that 72% of its revenue came from Microsoft in the first quarter of 2025.

Hedgeye Risk Management analyst Felix Wang, who holds a short position on the stock and said he has taken a financial beating because of that bet, said "the catch here is if the hyperscalers do at some point decide to do their own thing — whether it's Microsoft building their own own data centers, AWS [Amazon (AMZN) Web Services] building their own data centers — or the hyperscalers decide to use more ASIC products and not use GPUs per se from Nvidia anymore."

ASIC products are custom AI chips made by companies such as Broadcom (AVGO), distinct from Nvidia's more general-purpose graphics processing units.

Wang said CoreWeave's increasing reliance on OpenAI is also troubling. OpenAI's commitment of an additional $4 billion to CoreWeave in May came on top of its previously announced $11.9 billion deal with the company in March, according to CoreWeave's regulatory filing to the Securities and Exchange Commission on Thursday.

OpenAI is losing money and relying on continuing to raise capital it doesn’t have to fund both its $16 billion commitment to CoreWeave and $19 billion commitment to the so-called Stargate AI data center project, which is reportedly struggling to get off the ground. Wang also expressed concerns that OpenAI's biggest backer, SoftBank, has a significant amount of debt.

Only in an environment where AI continues to soar at "exponential" rates can CoreWeave succeed, Luria said. That's a risk because Big Tech is still figuring out how to monetize the technology and could eventually pull back spending on AI data center capacity. And if Big Tech pulls back on that capacity, companies will likely stop renting extra capacity from CoreWeave on top of operating their own data centers.StockStory aims to help individual investors beat the market.

Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at [email protected].

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