Gil Luria from D.A. Davidson advises caution with CoreWeave, citing its high debt levels and questionable financial strategy, despite its recent stock surge and AI industry growth. He recommends investing in financially stronger companies like Microsoft and Mobius, which offer sustainable growth and better shareholder value rather than heavily leveraged, speculative AI plays.
In the video, D.A. Davidson’s Gil Luria discusses the recent performance of CoreWeave, a prominent AI infrastructure company that has experienced significant stock price increases this year. Despite the enthusiasm surrounding the stock, Luria maintains a cautious stance, reiterating an underperform rating and a target price of $36. He emphasizes that the company’s recent financing structure raises concerns, particularly regarding its debt levels and how they impact shareholder value.
Luria explains that CoreWeave’s financial strategy appears problematic, comparing it to borrowing at a 10% margin rate to buy bonds yielding only 5%, which results in value destruction. He notes that much of the company’s cash flow is being used to pay down debt rather than generating value for shareholders. This situation is compounded by the stock’s low float and difficulty in shorting, which can lead to speculative price movements reminiscent of past bubbles like AMC, where stock prices soared due to hype but eventually reverted to more realistic levels.
The analyst acknowledges the strong demand for AI infrastructure and the company’s partnerships with major players like Nvidia, which supplies high-end chips. However, he argues that while the AI industry is booming, there are better investment opportunities within the sector. He suggests that investors should look beyond companies like CoreWeave, which are heavily leveraged, and instead consider firms with more sustainable financial models.
Luria highlights Microsoft as an example of a superior AI investment, citing its high return on invested capital of 21% and a low cost of capital at 5%. Microsoft creates significant value for shareholders through its efficient capital allocation and profitable operations. This contrasts sharply with CoreWeave’s debt-heavy structure, which he views as a risk rather than an opportunity for long-term growth.
Finally, Luria points to Mobius, a pure-play AI hyperscaler that operates without the burdens of excessive debt and focuses on creating shareholder value. Mobius owns the second-largest AI data company and is valued at nearly $30 billion, representing a more attractive investment in AI compared to heavily leveraged companies like CoreWeave. Overall, he advocates for investing in financially sound companies that can sustainably capitalize on AI growth rather than speculative plays driven by hype and debt.