Wall Street sees a debt disaster in CoreWeave. I see a stock that could triple
I’m a contrarian technology investor. I look for companies that I believe Wall Street has misunderstood. Right now CoreWeave is a compelling example. The Livingston, New Jersey-based company is a leading provider of cloud infrastructure for artificial intelligence. Think of it as the Amazon Web Services of the GPU world. Rather than providing general-purpose cloud computing, CoreWeave specializes in the powerful computing infrastructure needed to develop and run AI models. Key points Has built a leading position in AI infrastructure and is rapidly expanding its footprint. Long-term contracts with major customers help mitigate risks from its heavy debt load. Revenue and profitability could surge over the next several years as the company brings more data centers online. CoreWeave has taken on an enormous amount of debt to build out its AI infrastructure, and investors are getting nervous. Those concerns coupled with a broader technology sell-off sent shares sharply lower last week. But I’m sticking with my call. CoreWeave has secured long-term contracts with some of the biggest names in technology, and demand for AI computing capacity shows no signs of slowing. It’s a risky strategy, no question. But I believe the company has the customers and growth potential to make its ambitious expansion pay off. Why I’m buying CoreWeave is building AI capacity faster than its rivals CoreWeave has already established itself as a leader in the emerging neocloud industry, which provides specialized computing infrastructure for AI companies. It has 51 data centers, with approximately 1.5 gigawatts of active power capacity and 4.2 gigawatts of contracted power. To put that in perspective, the company added 500 megawatts of capacity in its most recent quarter alone, more than the total deployed capacity of most of its competitors. I also like who CoreWeave is doing business with. Its customers include Microsoft, Meta and OpenAI, some of the biggest names in AI. Many of its contracts are structured as take-or-pay agreements, meaning customers generally commit to paying for capacity whether or not they fully use it. Debt concerns are exaggerated Let’s address the elephant in the room: CoreWeave has borrowed heavily to finance its rapid expansion. The credit markets have started to price its debt in distressed territory and that’s transferred over to a big pullback in its equity. CRWV YTD mountain CoreWeave, YTD One reason CoreWeave carries so much debt relative to its competitors is that it’s further along in building out its infrastructure. The company also uses specialized financing structures backed by contracted customer cash flows, which helps support its enormous capital spending requirements. It has another powerful partner in its corner: Nvidia . The chip giant has a contractual commitment to purchase certain unused CoreWeave capacity and owns a substantial equity stake in the company. Explosive growth could change the narrative I expect CoreWeave’s annual revenue to grow from approximately $5.1 billion in 2025 to $43.6 billion in 2028. That’s more than an eightfold increase in three years. I’m also forecasting an adjusted EBITDA margin of approximately 67% in 2028. If CoreWeave can deliver on those projections, I think investors will start looking at its debt very differently. And we won’t have to wait until 2028 to see whether the company is making progress. Why now? With CoreWeave shares trading near their 52-week low, I see an attractive entry point ahead of the company’s Nov. 10 earnings report. I’m expecting solid results, with the potential for an upside surprise in adjusted EBITDA margins. I’ll also be watching for signs of further margin improvement in management’s December-quarter outlook. My official price target is $151, implying roughly 181% upside from the current price of $53.77. I believe the stock could double or even triple over the next two years. Bottom line CoreWeave’s substantial debt makes it vulnerable if growth disappoints or financing becomes more expensive. But my biggest concern is whether the company can bring all that new data center capacity on time and on budget. I’m going out on a limb with this contrarian call. In a couple of years, I could look like the GOAT (Tom Brady style) or just a goat with a very bad stock pick. Time will tell. But I’m willing to go against the grain. Paul Meeks is the Managing Director and Head of Technology Research of Freedom Capital Markets . Disclosures: Meeks does not own shares personally or through the firm. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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