A conspiracy theory surrounding Nvidia has made the rounds on social media, and a Wall Street firm is having none of it.
Bernstein debunked the baseless theory that CoreWeave is a shell company driving much of Nvidia’s recent growth.
“We can’t believe we feel the need to write this note today. And yet, here we are.”
“Please don’t get your investment thesis from Twitter randos.”
That’s the main message behind a Wednesday note from Bernstein analyst Stacy Rasgon, who felt forced to dispel a conspiracy theory about Nvidia after it made the rounds on social media this week, prompting his clients to ask whether it has any merit and if it could be hurting Nvidia’s stock.
“We can’t believe we feel the need to write this note today. And yet, here we are,” he wrote.
The bearish chatter on social media goes something like this: Much of Nvidia’s growth this year has been fueled by GPU sales to an alleged shell company named CoreWeave, a startup founded by three commodity traders in 2017 that was initially focused on crypto mining.
Conspiracy theorists point to Nvidia’s second-quarter results, in which revenue more than doubled while cost of goods sold rose by only 7%.
Further fueling their skepticism is a web of connections between Nvidia and CoreWeave. For example, Nvidia invested $100 million in CoreWeave earlier this year. CoreWeave also raised $2.3 billion in debt from Magnetar Capital and Blackstone last month, and used its horde of Nvidia chips as collateral. CoreWeave plans to use the debt to buy more chips from Nvidia and hire more talent to help build out its cloud platform.
Nvidia and CoreWeave declined to comment.
But in his note to clients, Rasgon thoroughly debunked the conspiracy mongering.
“Beyond somewhat hilariously confusing ‘Blackstone’ with ‘Blackrock’ during the process, this is also nonsense. Nvidia did not need help from CoreWeave (or anyone) to juice the quarter (their products are all on allocation), and the [CoreWeave] debt facility was announced August 3 (after the quarter was completed) with the release suggesting deployment has likely not happened yet,” he said.
CoreWeave is a real company that has pivoted away from its crypto origins and is now focused on building a GPU cloud platform using Nvidia’s highly sought-after H100 chips. It’s not a shell company. CoreWeave recently announced a new $1.6 billion data center in Texas and plans to have 14 data centers up and running by the end of the year.
And while Nvidia did buy a stake in CoreWeave, it also invested in 10 other AI startups so far this year.
“As companies like CoreWeave build businesses based on NVIDIA GPUs it is in NVIDIA’s interest to see them succeed given their presence offers a counter to the threat of bigger Cloud Service Providers developing their own internal AI offerings,” Rasgon said.
Finally, he said there is a simple explanation behind Nvidia’s 7% increase in cost of good sold (COGS) last quarter even as revenue surged more than 100%.
“The actual explanation is much more prosaic, to wit, the company took $1.34B in charges (~$1.22B in inventory reserves and $122M in warranty reserves) that ran through cost of goods sold in the year-ago quarter. Closer reading of the requisite filings would find that excluding charges COGS actually increased by ~70% YoY in FQ2 along with 101% increase in revenue, a ~76% incremental gross margin and entirely normal given the YoY strength in datacenter,” Rasgon said.
He reiterated his “Outperform” rating on Nvidia with a $675 price target, representing potential upside of 46% from current levels.
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