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CoreWeave's current liquidity position looks stretched to HSBC, partially due to a lack of follow through on the part of OpenAI on a $15 billion cash commitment.
For the benefit of those who might not be aware, CoreWeave is a major cloud-based GPU-as-a-Service provider that distinguishes itself by providing early access to NVIDIA's latest products, and that too, at scale, thanks to its unique partnership with the GPU giant.
Despite the relentless hype surrounding CoreWeave shares lately, HSBC has chosen to focus on the stock's negatives, pegging a 'Reduce' rating and a $32 price target on the high-flying stock, which corresponds to a downside of around 77 percent relative to the current share price of around $143.
HSBC analyst Abishek Shukla believes that the GPU cloud market is becoming "increasingly commoditized," leading to relatively low returns.
This paradigm shift is being driven by the GPU cloud market's lower entry barriers, especially when compared with the general-purpose cloud market, as well as its less demanding technological requirements and operational structure.
Meanwhile, NVIDIA is doing all it can to boost neocloud GPU-as-a-Service providers by offering investments, earlier allocations to purchased GPUs, and even marketing assistance.
According to Shukla, it is hardly a surprise, therefore, that CoreWeave's Q1 2025 asset turnover - revenue generated for each dollar of fixed assets - sat at just 32 percent vs. around 76 percent for hyperscalers such as Amazon's AWS.
On a tangential note, Shukla calculates that every dollar of CapEx that Amazon's AWS spent on GPUs since Q2 2023 has resulted in incremental annual revenues of just $0.37. This again highlights the low-return profile of GPU cloud services, which forms the bedrock of HSBC's thesis against CoreWeave.
To generate higher returns, Shukla believes CoreWeave will have to transition to general purpose cloud computing and sell more of its value-added services by leveraging its proprietary software stack.
Also, the HSBC analyst believes CoreWeave will have to pivot away from customers such as Microsoft and OpenAI, which together accounted for 72 percent of its revenue and the bulk of its order backlog in Q1 2025.
Instead, CoreWeave will have to cultivate general purpose compute customers who would be willing to utilize a greater proportion of its software stack. Such a transition, however, will entail higher R&D, marketing, and interest costs.
Critically, Shukla sees CoreWeave's liquidity position as "stretched," courtesy of elevated energy and data center rental costs, which amounted to 6.1 percent and 16.4 percent of its Q1 2025 revenue, respectively, with rental costs all set to increase further amid a plethora of new data center deals.
Most importantly, the analyst believes that "Open AI has not extended a material cash advance despite committing to USD15bn-plus of offtake."
Bear in mind that CoreWeave uses a take-or-pay operational model, where its customers provide a predictable cash stream regardless of their utilization of the underlying compute resources. In fact, around 96 percent of CoreWeave's revenue stream consists of committed contracts.
What's more, CoreWeave also requires its customers to prepay a significant sum of money upfront, which is then used to partially fund the requisite infrastructure build out for contractual performance.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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