CoreWeave Q2 Profit Surges 101% Yet Bernstein Keeps 'Underperform' Rating

Woofun AI reports that despite delivering its strongest financial performance to date, CoreWeave remains under a 'Underperform' rating from Bernstein, which maintained this stance in an analysis released on August 11. While the investment bank raised its price target from $67 to $74, acknowledging the company's record-breaking operational metrics, it refused to upgrade its outlook, citing structural capital intensity and long-term competitive vulnerabilities that overshadow short-term earnings strength.

The second-quarter financial results demonstrated significant operational leverage, with revenue reaching $2.575 billion, marking a 112% year-on-year increase and a 24% quarter-on-quarter rise, slightly exceeding the market consensus of $2.563 billion. Profitability metrics showed even sharper improvements: adjusted EBITDA climbed to $1.51 billion, up 101% year-on-year, while the margin expanded from 56% in the first quarter to approximately 59%. Adjusted operating profit surged from $21 million to $128 million, achieving a 5% margin that surpassed the previous guidance range of $30 million to $90 million. Management attributed these gains to expanded deployed hash rate, higher utilization rates, and more profitable new contracts, noting that recently signed deals offered margins 5–10 percentage points higher than prior quarters.

Additionally, a 25% price increase implemented in July suggests that second-quarter margins have not yet fully reflected current pricing power.

Demand visibility remains exceptionally strong, with CoreWeave reporting a backlog of $104.2 billion at the end of the second quarter, a 46% year-on-year increase. Including $25 billion in additional customer commitments announced at the start of the third quarter, the total backlog reached approximately $129.2 billion. The company indicated that more than half of these orders are already in the delivery phase, with this proportion expected to exceed two-thirds by year-end.

This shift highlights that the primary constraint is no longer customer acquisition but the speed at which CoreWeave can build and operationalize signed hash rate contracts to meet this massive demand pipeline.

Infrastructure expansion continues to accelerate, with active power capacity increasing by nearly 500 MW in the second quarter to reach 1.5 GW. The annual target for active capacity was raised from over 1.7 GW to more than 1.85 GW, while contracted power capacity grew from 3.7 GW at the end of the second quarter to around 4.2 GW during the earnings call.

Furthermore, the company secured another 1.5 GW in potential power resources through land options, site expansions, and letter of intent agreements. This trajectory illustrates a rapid scaling from 360 MW in 2024 to 1,500 MW in the second quarter of 2026, with contracted capacity now standing at approximately 4,200 MW, securing critical scarce resources like power and server space.

However, this infrastructure growth requires immense capital outlays, which Bernstein identifies as a primary risk. Second-quarter capital expenditures reached $9.4 billion, exceeding the upper limit of previous guidance, while capital expenditures on projects under construction rose from $9.6 billion in the first quarter to $11.9 billion. The company raised its full-year 2026 capital expenditure guidance from $31 billion to a range of $35 billion to $39 billion, with an additional $11.5 billion to $13.5 billion expected to be invested in the third quarter alone. This heavy investment phase is necessary to purchase GPUs, build data centers, and deploy networking and cooling facilities to fulfill future hash rate contracts.

The disparity between investment scale and revenue generation is stark. CoreWeave's latest 2026 revenue guidance stands at $12.4 billion to $13.2 billion, significantly lower than the projected capital expenditures. This dynamic places the company in a classic heavy-investment cycle where upfront costs for infrastructure and hardware must be covered by future cash flows. The GAAP net loss in the second quarter remained at $626 million, while net interest expenses rose to $640 million, underscoring the financial strain of rapid expansion before revenue fully matures.

Woofun AI data shows that to fund this growth, CoreWeave raised approximately $18 billion through debt, convertible bonds, and equity financing in the second quarter, bringing total debt and equity capital to over $32 billion. Although the weighted average cost of debt dropped by nearly 300 basis points over the past year, the absolute scale of borrowing creates a fundamental difference from traditional cloud providers like Microsoft, Amazon, and Google. Unlike these hyperscalers, which can fund AI infrastructure with cash flows from mature businesses, CoreWeave relies heavily on external financing, leading to higher debt and interest expenses as the business expands.

To mitigate this capital intensity, CoreWeave is pivoting toward managed inference, or hosted inference services, which charge based on tokens or actual usage rather than multi-year take-or-pay contracts. This model addresses shorter-term, flexible AI inference demands and helps utilize older-generation GPUs as long-term contracts expire. The reserved annual recurring revenue for this service has grown from around $1 million at launch to over $100 million, with plans to reach at least $250 million by the end of 2026. This strategic shift aims to improve asset lifecycle utilization and reduce the financial impact of declining GPU residual values.

Bernstein acknowledges this strategy but remains skeptical about its immediate impact, noting that hosted inference is still in its early stages with unproven profit margins, customer retention, and usage stability. The analyst firm's bearish outlook stems from long-term risks emerging in 2027 and 2028, when the current scarcity premium may decline. Bernstein expects CoreWeave to secure around $45 billion in new contracts by the end of 2027, but warns that once data center supply increases, neoclouds will face intense competition from hyperscalers with lower capital costs and stronger software ecosystems. The report argues that continued AI demand cannot eliminate this structural issue, only delay it.

Consequently, Bernstein's 2028 revenue forecast is approximately 15% lower than the market's average expectation, reflecting concerns about CoreWeave's ability to maintain pricing power and software differentiation. Using a forward EV/adjusted EBIT multiple of 25.5 times, the firm set a target price of $74, implying an 18% downside from the closing price of $90.32 on August 11. The report identifies three upside risks: slower-than-expected data center construction by hyperscalers, successful differentiation of CoreWeave's software platform, and persistent power shortages. Ultimately, the challenge for CoreWeave is to prove that its growth can generate sustainable capital returns sufficient to cover GPU depreciation, construction costs, and financing expenses, transforming from a high-growth hash rate provider into a durable business.