Shares of CoreWeave Inc (NASDAQ:CRWV) tanked in early trading on Monday. The cloud computing company is heavily dependent on debt financing, according to DA Davidson analyst Gil Luria.

The CoreWeave Analyst: Luria assumed coverage with a Neutral rating and slashed the price target from $175 to $100.

The CoreWeave Thesis: This could be "a good time to be balanced," Luria said in the note. Citing the positives:

• The AI cloud category has strong prospects, as demand for compute power is unlikely to change any time soon.
• CoreWeave has reduced "concentration risk," aided by continued investments from Nvidia Corp (NASDAQ:NVDA) and customers like Microsoft Corp (NASDAQ:MSFT), OpenAI and Meta Platforms Inc (NASDAQ:META), among others.

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CoreWeave is among "the least profitable clouds," Luria says. It generates only 1% adjusted EBIT margin on annual revenues of around $8 billion. This becomes a greater concern as input prices continue to rise, he noted.

While CoreWeave assumed some margin on input costs at the time of signing deals, the company has inked multi-year contracts that may not have included hedging memory prices for three to five years, which is likely to exert significant pressure on margins, the analyst stated.

Execution risk remains high for all AI clouds, Luria wrote. It may be more of an issue given the steepness of the ramp for CoreWeave and “a history of previous missteps," he added.

All of these concerns justify the stock trading at a discount to Nebius Group (NASDAQ:NBIS), he added.

Price Action

Shares of CoreWeave had declined by 6.27% to $100.57 at the time of publication on Monday.

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