Investing.com -- CoreWeave shares rose 6.3% in premarket trading Monday after Goldman Sachs upgraded the artificial intelligence infrastructure provider to Buy from Neutral, arguing that investors may be overestimating financing risks and underestimating the potential returns on its computing investments.

Analyst Gabriela Borges cut her price target to $106 from $139 but still sees substantial upside following a sharp selloff. The stock fell 24% in the five trading sessions through last week and has dropped 43% since Aug. 11, when CoreWeave reported second-quarter earnings, according to Goldman Sachs.

The selloff reflects concerns about volatility in credit markets and the cost of financing CoreWeave’s next phase of expansion, as well as questions about demand for advanced AI models and whether changes in the mix of AI workloads could affect how its customers monetize computing capacity.

Goldman Sachs argues those concerns may be overstated. The bank expects CoreWeave’s annual recurring revenue per megawatt of computing capacity to increase over the next two years, supported by tight supply, competitive performance and cost metrics, and the company’s ability to bring new capacity online.

“We believe CoreWeave’s ARR per MW, and therefore unlevered IRR, is biased to the upside in the next 24 months,” Borges wrote, referring to annual recurring revenue per megawatt and the unlevered internal rate of return on invested capital.

Borges also expects the company’s blended cost of debt to rise by 100 to 200 basis points, but sees limited further increases based on discussions with industry credit investors. While CoreWeave’s unsecured debt has traded at yields to worst of 13.5% to 15%, she said those levels may not reflect the company’s actual cost of new financing because its funding structure relies primarily on asset-based debt.

The distinction matters for a capital-intensive business whose valuation depends on the returns generated by its computing assets relative to the cost of financing them. Goldman Sachs believes investors are underestimating the potential improvement in returns while overestimating the likely increase in financing costs.

The bank acknowledged that forecasting AI infrastructure demand, future supply conditions and the residual value of computing assets remains difficult. Still, it expects developments over the next 12 months to provide positive signals for CoreWeave and views the recent share-price correction as a buying opportunity.

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