CoreWeave (CRWV) shares faced a decline on Monday as tech leaders including Sam Altman and Dario Amodei warned that the development of artificial intelligence (AI) models must be conducted in a way that mitigates potential risks. According to Maysun Rezaei, a senior analyst at Bernstein, a possible slowdown in AI model training could pose a significant barrier for neo-cloud companies like CoreWeave.
CoreWeave Stock Status
Despite today's drop, CoreWeave shares have risen nearly 40% from their lowest point this year. Rezaei believes that CRWV shares are particularly at risk as 74% of the company's pipeline is located in rural class 3 and 4 areas.
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Challenges Facing CoreWeave
This means that the company's capacity has been physically optimized for AI training, while real-time AI applications typically require data centers with low latency located near large population centers. If tech leaders slow down model training, the overall demand for CoreWeave's rural facilities may significantly decrease, which could harm the company's long-term growth profile.
Bernstein currently has a "underperform" rating for CRWV and has set a price target of $74, indicating a potential decline of over 10% from here. In their research note, Rezaei acknowledged that CoreWeave's current backlog is dependent on "must-pay" agreements to protect its current cash flow.
However, a slowdown in AI training or a shift towards inference, which is essential for more active tasks, could hinder the capacity of the unmonetized pipeline.
The Bernstein analyst told clients: "The backlog consists of must-pay contracts, so we do not foresee a threat there, but a decrease in demand for rural power that has yet to be sold may be observed if training development slows down." Currently, CoreWeave shares are also not paying dividends.
Significantly, other Wall Street firms do not generally agree with Bernstein regarding the future of CRWV shares. According to Barchart, the consensus rating on CoreWeave remains "average buy" with an average price target of about $140, indicating a potential increase of nearly 70% from current levels.
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