"MW Frenzy" is coming! Piper Sandler gives its first evaluation of two new AI cloud companies: favors CoreWeave (CRWV.US) over Nebius (NBIS.US) in the short term due to uncertainty.

Driven by the impressive earnings reports from tech giants, the AI computing power sector has recently rebounded. Against this backdrop, Piper Sandler has initiated coverage on two leading emerging cloud companies, assigning CoreWeave (CRWV.US) an "Outperform" rating with a target price of $151, and Nebius (NBIS.US) a "Neutral" rating with a target price of $224. The firm believes that CoreWeave offers a more favorable risk-reward ratio at current market levels, while Nebius faces uncertainties in project implementation and performance delivery in the short term. Piper Sandler analyst James Fish wrote in the report, "We are optimistic about the development of the entire sector, as AI infrastructure is still in its early stages and we expect both companies to benefit significantly in the medium to short term. Based on comprehensive valuations and performance assumptions, CoreWeave demonstrates a superior risk-return profile." "Megawatt Mania" Approaches: AI Computing Market Expected to Exceed $100 Billion Piper Sandler refers to the current wave of AI computing expansion as "Megawatt Mania." The firm estimates that AI computing demand will continue to outstrip supply over the coming years, with the global AI computing market expected to reach $109 billion by 2029, representing a compound annual growth rate of 56%. According to Piper Sandler's megawatt market model, the total global AI computing capacity is projected to grow sixfold over the next few years, with CoreWeave and Nebius expected to capture 12% and 9% of the global megawatt market share, respectively, by 2028. Analysts highlight that the core advantages of both new cloud companies lie in their deep collaboration with NVIDIA Corporation and specialized infrastructure architecture. By employing customized software and infrastructure setups, CoreWeave and Nebius offer costs and pricing that are over 40% lower than traditional hyperscale cloud service providers, some of whom are also significant clients of theirs. However, the sector itself carries inherent drawbacks: substantial upfront capital expenditures, high customer concentration, and a long-standing risk of large clients building their own computing capacity. Nonetheless, long-term contracts and master service agreements (MSAs) can provide good transparency, deeply bind high-growth AI scenarios, and generate stable long-term cash flow. CoreWeave: Software Stack + Financing Structure Build Competitive Barriers In evaluating CoreWeave, Piper Sandler particularly emphasized its software orchestration stack SUNK and the strength of its engineering team. These factors contribute to lowering token computing costs and enabling multi-cloud deployment, creating critical differentiated advantages. Fish also noted that CoreWeave's long-term agreements and financing arrangements mitigate debt risk. The analyst believes that current mid-term financial and megawatt computing-related forecasts for CoreWeave remain conservative and have upward elasticity. Nebius: Strong Business Model, but Execution Risks Loom Nebius's strength lies in its asset-light expansion model: developing its own server and cabinet hardware and possessing a complete end-to-end product system, including the Soperator platform and Token Factory toolchain, while leveraging customer prepayments to fund business expansion. Piper Sandler optimistically forecasts that Nebius's annualized revenue scale could exceed $25 billion by 2028. However, there are uncertainties surrounding Nebius's Vineland data center project. Reports indicate that residents of Vineland, New Jersey are protesting the development of a large-scale AI data center by DataOne for Nebius. This project is part of Nebius's infrastructure agreement worth up to $17.4 billion to $19.4 billion signed with Microsoft Corporation. Local government officials will hold a special meeting on August 5 to discuss related project planning. Analysts point out that the risks associated with Nebius's Vineland data center project have led to a more cautious neutral stance, with CoreWeave demonstrating a better risk-reward ratio.