Written by: Rita

CoreWeave achieved synchronized expansion of capacity and revenue in the second quarter of 2026.

The company added a net active power of 500MW in a single quarter, exceeding any previous quarter and tripling compared to the same period last year. Management reiterated the target of reaching at least 8GW by 2030. Morgan Stanley maintained an Equal-weight rating with a target price of 99 dollars in its Q2 performance report on CoreWeave released in August, believing that this GPU cloud service provider's execution in the generative AI (GenAI) data center sector is accelerating, but the high debt burden and customer concentration remain key constraints preventing valuation breakthroughs.

Morgan Stanley summarized this judgment as: “CoreWeave has built a business scale of over 25 billion dollars in 5 years, which is unprecedented in the software industry, but its lack of solid operational and financial history, high debt burden, and significant customer concentration cannot be ignored.”

Single Quarter Addition of 500MW, Capacity Climb Sets Record

CoreWeave added 500MW of active power in Q2, setting a record for the highest single-quarter incremental increase.

This pace of capacity expansion validates the company’s execution in large-scale GPU cluster construction and operation. Management reiterated its target of at least 8GW by 2030, indicating there is more than 6GW of growth space over the next four years. The company also raised its annual capital expenditure guidance, with the median adjusted up 12% to a range of 35.5 billion to 39 billion dollars. Q3 capital expenditure guidance is set at 11.5 billion to 13.5 billion dollars, higher than the market expectation of 10 billion dollars, which Morgan Stanley believes indicates that capacity is still being deployed at an accelerated pace.

Capacity expansion directly drives revenue growth. The FY26 revenue guidance median was raised 2% to a range of 12.4 billion to 13.2 billion dollars, and the ARR median was raised 3% to a range of 18.5 billion to 19.5 billion dollars. Q3 revenue guidance is 3.45 billion to 3.6 billion dollars, slightly above market expectations. Management's Managed Inference platform ARR grew from 1 million dollars to over 100 million dollars, with expectations to reach at least 250 million dollars by year-end, which is a clear signal of the GPU cloud service provider extending from infrastructure leasing to high-margin software services.

Improvement in Profitability, but Sustainability of Profit Margins is Doubtful

Q2 adjusted operating profit margin is approximately 8%, higher than the market expectation of 7.6%. The company raised its full-year adjusted operating profit guidance by 6% to a range of 960 million to 1.15 billion dollars.

However, the Q3 adjusted operating profit guidance is set at 200 to 260 million dollars (profit margin of 5.8% to 7.2%), lower than the market expectation of 262 million dollars (profit margin of 7.6%). This means that Q4 profit margins need to be significantly improved to meet the annual guidance. Management expects Q4 profit margins to reach low double digits, but the market has doubts about this, as the capital intensity of capacity expansion may be higher than expected, leading to uncertainty in the pace of margin improvement.

Morgan Stanley expects CoreWeave's FY27 operating profit margin to be 15.9%, and FY28 to be 22.4%, but still far below the profit margin levels of software companies of similar size. The free cash flow profit margin is expected to be -216% for FY26, -119% for FY27, and -55% for FY28, remaining negative until 2028.

High Debt and Customer Concentration are Core Factors for Valuation Discount

The debt burden continues to expand. Morgan Stanley expects the debt to rise to about 38 billion dollars by the end of 2026, while free cash flow is expected to remain negative at least until 2028. The company supplements its capital through equity financing, but under the current financing costs, the risks of debt extension and refinancing cannot be ignored. Morgan Stanley's SOTP target price is 99 dollars, based on 29 times CY35 free cash flow. The industry valuation multiple is about 6 times EV/CY27 revenue. Given CoreWeave's debt levels and customer concentration, the valuation does not receive a premium.

Customer concentration is also hard to overlook. Morgan Stanley explicitly lists the possibility of “large clients intending to build their own AI computing power” as a risk factor. If large-scale firms like Microsoft and Amazon internalize more AI workloads, CoreWeave's core demand base will face direct impact. This is also the core reason why Morgan Stanley maintains an Equal-weight rating and does not issue an Overweight rating, as the tug-of-war between growth narratives and financial constraints keeps the stock price within a reasonable pricing range.

Morgan Stanley expects FY27 revenue to be 28.6 billion dollars with earnings per share of 1.91 dollars. The current stock price is about 90 dollars, corresponding to about 47 times FY27 earnings. For a GPU cloud service provider that is still burning cash for expansion, has negative free cash flow, and is facing continuous debt expansion, this valuation level already reasonably reflects various expected possibilities, including structural growth in GenAI data center demand, as well as downside risks brought by financing costs and customer concentration.

Disclaimer

This article is a compilation and interpretation of the third-party brokerage research report (Morgan Stanley, August 12, 2026) by ChaoXiang Research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in this article are the opinions of that brokerage's analysts and represent only the positions of their institutions, not the views of ChaoXiang Research, and do not constitute any investment advice.

The market has risks, and decisions should be independent. This article should not be used as the basis for buying or selling any securities.