Why CoreWeave Is The Best Neocloud Buy

What does Wall Street have against CoreWeave? Shares of the neocloud have been stalled for the past 12 months, even as the stocks of rivals such as Amsterdam-based Nebius and Australia-based Iren have soared. That’s despite the fact that CoreWeave is the furthest along in building a business to compete with more established cloud firms.

CoreWeave is now trading at just 2.2 times its expected 2028 revenue, well below both Nebius and Iren, which are both trading at around 2.7 times, according to analyst estimates compiled by S&P Global Market Intelligence. We’re looking at 2028 revenue because by then all three will have begun delivering on recent contracts they have signed with customers.

That gap offers an opportunity for risk-tolerant investors looking to bet on the AI boom. CoreWeave has the biggest business, expected to generate $12.9 billion in revenue this year, about 4 times the revenue of Nebius, which in turn is about 4 times that of Iren.

CoreWeave currently has the most data centers in operation—at least 51—and says it has 1.5 gigawatt of active power as well as 3.7 more GW under contract, most of which is scheduled to come online in the next four years, according to its latest investor disclosures. But its rivals are catching up. Nebius is targeting more than five GW of contracted power by the end of the year, the company has said, while Iren expects to have 1.2 GW online by the end of next year.

CoreWeave’s valuation discount likely reflects concerns that it is overdependent on a handful of big customers, most notably Microsoft, which once accounted for nearly all its revenue and still accounts for more than a third of its business. Other big customers include Meta Platforms and OpenAI.

The problem for CoreWeave is that some of the big tech firms may move away from using its services in the future. Microsoft, for instance, which relies more on outside cloud firms than its rivals do, is investing heavily in expanding its own network of data centers.

The same is true of Meta, which is spending hundreds of billions on building its own data centers, and Google, also a CoreWeave customer. Google executives have said the company’s use of outside cloud firms was a “bridging strategy” until the data center capacity it is building is ready.

Nebius, in contrast, said early on it was targeting companies such as big financial institutions rather than relying solely on business from the big cloud firms, said Paul Meeks, managing director and head of technology research at Freedom Capital Markets, who owns shares in all three neoclouds and has lately been adding to his position in CoreWeave.

The good news is that CoreWeave is diversifying its customer base. As of June 30, the company said its biggest customer accounted for 36% of revenue, down from 71% a year earlier. The next two customers account for 36% between them. In comparison, Nebius said that as of Dec. 31, its biggest customer accounted for 25% of its revenue, and the next biggest contributed 15%.

CoreWeave signed a deal with hedge fund Jane Street, one of its investors, in April and inked a new, multibillion-dollar agreement this month with another one, Hudson River, according to Bloomberg.

The emphasis on CoreWeave’s customer concentration misses some of its advantages. For one thing, the ultimate driver of success in renting computing capacity will likely come down to which companies can actually build and deliver additional capacity on schedule. Given that CoreWeave has managed to get more capacity up and running, potential customers are likely to trust that it can deliver more reliably than its rivals.

CoreWeave is also far more efficient with its capital. In the June quarter, for every dollar of revenue it generated, it spent the lowest amount on capital expenditures, with a ratio of 2.5. Nebius’ and Iren’s ratios were both over 9 times for their most recent quarters. While none of the three is currently generating free cash flow, it’s possible CoreWeave’s early lead could help it get to that point faster.

Investors may be worried about CoreWeave’s financial exposure. As of June 30, its net debt—excluding cash—was 8.2 times its earnings before interest, taxes, depreciation and amortization for the previous 12 months, according to data from S&P Global Market Intelligence.

In comparison, Nebius’ equivalent ratio was only 4.7. Iren’s is much higher, as it is only now gearing up its business. Its ratio as of June 30 was 50.6, according to S&P.

But these figures will change quickly as contracts translate into revenue. As of June 30, CoreWeave’s had a backlog of contracts still to be recognized in revenue of $103.7 billion, 80% of which are set to be recognized within four years. That was up from $60.7 billion at Dec. 31.

As a result, CoreWeave’s Ebitda is expected to double to $7.5 billion for calendar year 2026 compared to where it was for the 12 months ending June 30. For calendar 2027, analysts project that CoreWeave’s Ebitda will more than double to $16.6 billion, making its debt look much more manageable.

Nebius executives said the company’s committed backlog was “more than $40 billion.” Iren executives said on Thursday the company was on track to have $4 billion worth of annualized recurring revenue under contract with its customers by the end of this year.

Meanwhile, analysts project that Iren’s Ebitda will hit $2 billion in the next 12 months, compared with just $34.7 million for the past 12 months. Nebius’ Ebitda is expected to rise to $1.4 billion this year and $6.4 billion next year.

“At the end of the day, all three of these companies are quite similar in their capabilities, and it’ll come down to who can actually build it,” Meeks said. His bottom line: “CoreWeave is the best buy, just simply on valuation.”

Others agree. CoreWeave’s “discounted valuation relative to neocloud peers appears disconnected with its leadership position,” wrote analysts with Truist in a report this week.