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Investing.com -- Shares of CoreWeave fell 6% on Tuesday after DA Davidson analyst Gil Luria reiterated his Underperform rating and $36 price target, citing concerns tied to the company’s recently disclosed financing structure. The selloff came as investors weighed a detailed note from Luria, who argued that the disclosures, rather than reassuring, highlight deep risks to equity holders over the contract lifecycle.

The AI hyperscaler has surged over 300% since its IPO debut in March, quickly becoming a new darling among AI-focused investors. Bears warn of dilution, while bulls point to potential dominance through deep NVIDIA Corporation (NASDAQ:NVDA) ties and a robust order pipeline amid accelerating compute demand globally.

CoreWeave had presented a pro forma financing structure as part of its ongoing investor communications, aiming to demonstrate potential shareholder returns during the course of newly signed AI infrastructure contracts. But Luria disputed the implications of that scenario, stating: “There is no upfront equity, and no returns to current equity holders during the contract.”

The company proposed using a 15% equity assumption, implying an 85% loan-to-value ratio to underpin its infrastructure buildout; however, DA Davidson underscored CoreWeave’s dependence on alternative leverage sources. These include vendor financing, unsecured notes, and credit lines with interest costs as high as 9.5%, which Luria estimates would require $590 million in additional debt servicing, effectively negating expected cash to shareholders.

Multiple risks arise from residual asset valuation as well, according to the note. “Amazon AWS just lowered the price it charges for H200s by 50%,” Luria wrote, arguing that expectations of high residual GPU value are misplaced and that the resale potential after four years could come in at less than 25% of current pricing levels.

Luria also questioned the profitability of existing data center contracts. The company’s investor materials used a 9% rate assumption for delayed-draw term loans (DDTLs), yet its first-quarter filings disclosed a blended rate of 12.5%, prompting concerns that “the entire value of the enterprise is owned by the debt holders.”

Discounting future asset values and equity dilution risks, DA Davidson estimates the equity value could be less than $5 per share longer-term, well below the current trading range. Luria wrote, “We believe that indicates a <$7.5bn four years from now as the value to shareholders, discounted 4 years, or less than $5/share for equity holders.”

The only notable risk to DA Davidson’s view, according to the report, lies in CoreWeave’s ability to raise substantial equity at current market levels. “If the company is able to raise >$10bn in a secondary offering at these levels we believe it could justify the next two years of projects,” Luria noted, highlighting dilution as a potential escape valve.

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