1 Nvidia-Backed AI Stock to Buy Before It Soars 122%, According to a Wall Street Analyst

Nvidia (NVDA 0.57%) has about $4.3 billion invested in six companies, but the chipmaker has over 90% of its portfolio in CoreWeave (CRWV -2.67%), a major vote of confidence for the up-and-coming cloud services provider. CoreWeave shares have already advanced 125% since its initial public offering (IPO) in March, but Argus Research analyst Jim Kelleher recently set the company with a 12-month target price of $200 per share. That implies 122% upside from its current share price of $90. Here's what investors should know about CoreWeave. Image source: Getty Images. Bulls say CoreWeave is a leading provider of cloud AI services CoreWeave provides cloud infrastructure and software services purpose built for artificial intelligence (AI), and its data centers exclusively use Nvidia GPUs. SemiAnalysis recently ranked CoreWeave as the best AI cloud on the market, awarding it a higher score than Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud Platform. That praise reflects two competitive advantages. First, CoreWeave is frequently the first cloud platform to bring new chips to market because of its longstanding relationship with Nvidia. For instance, the company was the first to deploy Nvidia H100 and H200 systems, and it more recently became the first company to deploy Nvidia GB200 and GB300 systems. Early access to the latest technologies is a compelling reason to work with CoreWeave. Second, CoreWeave often achieves top results at the MLPerf benchmarks, standardized tests that measure artificial intelligence systems across training and inference use cases. The company says its infrastructure and software expertise results in up to 20% higher GPU cluster performance than alternative solutions. CoreWeave reported tremendous demand in the second quarter. Revenue soared 207% to $1.2 billion and non-GAAP operating income increased 135% to $200 million. In addition, the company said its revenue backlog increased 86% because of expanded deals with OpenAI and an unnamed hyperscale company (possibly Google). Bears say CoreWeave has a capital-intensive business model CoreWeave currently operates 33 data centers across the United States and Europe, with at least two more under construction, one in Pennsylvania and another in New Jersey. But operating data centers, especially when those data centers are filled with AI infrastructure, is very expensive. So CoreWeave has taken on substantial debt. And while the company says it has done so responsibly -- never taking on debt unless a signed contract creates a need for additional infrastructure, and only if the contract covers the entire cost of the debt -- the interest payments associated with its debt are already cutting deeply into profitability. As mentioned, CoreWeave said adjusted operating income increased 135% to $200 million in the second quarter. But that number excludes interest expense. When accounting for those costs, the company reported an adjusted net loss of $131 million, a much stepper loss than $5 million in the same quarter last year. Importantly, CoreWeave plans to unlock cost efficiencies by acquiring longtime partner Core Scientific, an infrastructure company that owns nine U.S. data centers. Management says the deal, expected to close in the fourth quarter, will eliminate more than $10 billion in future lease overhead, and result in additional annual cost savings of $500 million by the end of 2027. However, some analysts have raised questions about the terms of the all-stock deal, which stipulate Core Scientific stockholders get 0.1235 shares of CoreWeave for every share of Core Scientific. Those terms valued Core Scientific at $9 billion when the deal was announced. But CoreWeave stock has since dropped 44%. The risk here is shareholder dilution. CoreWeave will probably have to renegotiate deal with a higher exchange ratio to account for the sharp decline in its own stock. In that scenario, current shareholders would be diluted even more extensively than under the original terms. CoreWeave trades at a reasonable valuation, but the stock is likely to be volatile CoreWeave shares have advanced 125% since its March IPO, but the stock has also fallen 44% from the record high it reached in July. Currently, shares trade at 10 times sales, a very reasonable multiple for a company whose revenue is forecast to increase at 127% annually through 2026. However, CoreWeave is not expected to be profitable until at least 2027, which means the stock is likely to be volatile in the interim. Only patient investors comfortable with that risk should consider buying this AI stock, and they should start with a very small position.