CoreWeave Took a Step in the Right Direction, Gil Luria Says

Summary

Gil Luria of D.A. Davidson reacts to CoreWeave's second-quarter sales beat and improved margins, arguing the small step in operating margin is far from enough to make its neo-cloud business model viable given high borrowing costs. He also views Nvidia's announced loan guarantee program as a strategic lock-in for customers that reinforces its chip dominance, while warning that CoreWeave's dependence on hyperscalers like Microsoft may be temporary.

• CoreWeave's sales more than doubled, but operating margins only moved from 1% to 5%.
• Return on invested capital is approximately 1%, while borrowing costs have risen toward 10%.
• Luria says the neo-cloud model resembles borrowing at high rates to buy low-yielding assets and may not justify its existence.
• Nvidia announced a large financing pool with loan guarantees tied exclusively to buying Nvidia chips.
• The guarantee locks in Nvidia customers and leverages the company's massive cash position and expected cash generation.
• CoreWeave is heavily reliant on Microsoft and other hyperscalers, who use it as a short-term capacity tool.
• Luria warns that for CoreWeave shareholders, there may be a ticking clock if hyperscalers eventually stop needing the company.