Despite a downgrade from a prominent Wall Street research firm, CoreWeave, Inc. stock continued to head higher on Tuesday, up 21% to $123.97 and on pace to close at a record high.

Barclays analyst Raimo Lenschow downgraded the stock to Equal Weight from Overweight, while upping his price target from $70 to $100, representing roughly 15% downside from Tuesday's level.

"The issue investors now face with this next-gen high growth tech asset is to ascribe an appropriate valuation to the name, especially with there being no close comparable peer group that can be used. We can see these dynamics lending themselves to significant volatility in the stock, as demonstrated in share movements over the last two weeks," Lenschow wrote to clients on Monday. "We continue to like CoreWeave for its long-term opportunity and exposure to the GenAI theme, but given valuation and lacking a near-term catalyst, see limited upside in the near-term from here."

CoreWeave has been a hot stock since its initial public offering in March. As a cloud provider, it is a pure play in AI, renting out pricey AI servers from NVIDIA. The two companies have an unusually close relationship, with Nvidia being a shareholder, vendor, and customer to CoreWeave.

CoreWeave's IPO got off to a rocky start, with an offering price of $40, below the firm's original estimated range of $47 to $55. After a rough couple of days, CoreWeave stock is now up 157% from the offering price through Friday's close.

CoreWeave's business model is straightforward. Using its close relationship with Nvidia, it buys as many Nvidia GPUs as its demand requires, and rents them out. Microsoft is its biggest customer at 33% of first quarter revenue. CoreWeave recently signed a big agreement with OpenAI.

Revenue is growing by leaps and bounds. In 2022, the company had $16 million in revenue. As of the first quarter, revenue was coming in at an annual run rate of $3.9 billion. Analysts are expecting $5.1 billion in 2025, up from $1.9 billion last year.

The growth is reflective of the massive demand for AI computing. But to achieve it, CoreWeave requires a lot of capital expenditures and high levels of debt as support. CoreWeave has guided to $20 to $23 billion of 2025 capital expenditures, up from $8.7 billion in 2024, ending March with $11 billion in debt. The capex and debt show up in CoreWeave's income statement as depreciation and interest expense, where 72% of revenue was offset by those costs.

With only $1.4 billion of capex in the first quarter, CoreWeave is projecting that it will spend another $18 billion to $21 billion in the remainder of the year.

To maintain its growth CoreWeave will have to keep borrowing and spending. So far this year, the company has taken on $2 billion in senior notes and expanded its revolving credit line from $650 million to $1.5 billion. The senior notes have a 9.25% interest rate, which is lower than its 12% average rate at the end of 2024, but still high enough to keep interest payment weighing down earnings.

The new debt is unlikely to be enough. With $1.3 billion in cash at the end of March, CoreWeave will likely have to raise close to $20 billion this year to fund its projected expenses, while also paying $4.6 billion of debt maturities in 2025 and 2026.