CoreWeave (CRWV 0.95%) is already disrupting the cloud services industry with infrastructure purpose-built for artificial intelligence. Circle Internet Group (CRCL +1.12%) hopes to revolutionize the financial services industry by connecting enterprises with its stablecoin network. Certain Wall Street analysts think the stocks are deeply undervalued.
- Brent Thill at Jefferies values CoreWeave at $155 per share. That implies 128% upside from its current share price of $68.
- Jeff Cantwell at Seaport Research values Circle at $280 per share. That implies 245% upside from its current share price of $81.
Investors should never lean too heavily on target prices, but these stocks are compelling long-term investment ideas. Here's why.
Image source: Getty Images.
CoreWeave: Shaping the future of artificial intelligence and cloud computing
CoreWeave is a neocloud, sometimes called an artificial intelligence (AI) cloud or graphics processing unit (GPU) cloud. Regardless of terminology, the company is the leader among an emerging class of cloud services providers whose data center infrastructure is purpose-built for AI workloads like training and inference.
Research company SemiAnalysis recently ranked CoreWeave as the most capable provider of cloud AI services, scoring its platform above technology giants Amazon, Microsoft, and Alphabet. Analyst Dylan Patel wrote, "CoreWeave continues to set the benchmark for AI cloud performance by demonstrating strong technical execution and operational maturity."
CoreWeave reported solid third-quarter financial results. Revenue increased 134% to $1.3 billion on strong demand for AI infrastructure. The company also reported a narrower GAAP loss of $0.22 per diluted share, up from $1.82 per diluted share in the prior year. Finally, cash from operations increased more than 100% to $1.7 billion.
Nevertheless, the stock has fallen 36% since the reported because management lowered its full-year guidance and investors are worried about an AI bubble. Those concerns are overblown. The lower guidance reflects postponed (not lost) revenue due to data center construction delays, and Grand View Research says cloud AI spending will increase at 40% annually through 2030.
CoreWeave stock currently trades at 6.5 times sales. That is very reasonable (if not cheap) for a company whose revenue is projected to increase at 95% annually through 2027. That forecast suggests analysts are confident CoreWeave will keep growing at a rapid clip because of deep customer relationships with AI giants Microsoft, Meta Platforms, and OpenAI. Also, Nvidia has agreed to purchase any unsold compute capacity through April 2032. Investors with a time horizon of at least three years should consider buying a small position.
Circle Internet Group: Shaping the future of global finance
Circle is a fintech company that issues stablecoins and provides software tools that allow developers to integrate digital asset storage and payments into their applications. Its best-known product is USDC, the second largest stablecoin by market value, but the largest one that adheres to stringent regulations in the U.S. and Europe.
Interest payments are the primary source of revenue. USDC tokens are backed by an equal amount of dollar-denominated financial assets like Treasury bills and other government securities. However, the company is expanding into payments with the Circle Payments Network (CPN), which promises faster and cheaper transactions across use cases ranging from employee payroll to e-commerce.
Circle reported encouraging financial results in the third quarter. Revenue increased 66% to $740 million despite a modest reduction in interest rates because the circulating volume of USDC increased 108%. Meanwhile, adjusted EBITDA increased 78% to $166 million.
Management also provided two important updates: First, the CPN now includes 29 financial institutions, with more than 500 potential customers in the pipeline. Second, the company started testing its Arc blockchain, which resolves the problem of unpredictable gas fees on other blockchains.
Looking ahead, stablecoin revenue is projected to increase at 54% annually through 2030. JPMorgan Chase says USDC is the preferred stablecoin among financial institutions because of its focus on regulatory compliance. That makes Circle an attractive long-term investment, especially when the stock trades at 7.6 times sales, nearly the cheapest valuation since its June IPO.
