Dalio warns of AI bubble, Bridgewater sees "golden" opportunity in CoreWeave (CRWV.US)

Bridgewater Associates, the world's largest hedge fund, recently completed an unexpected investment in the third quarter - spending $37 million to acquire 270,556 shares of CoreWeave (CRWV.US) stock. This investment timing is particularly noteworthy because the fund's founder, Ray Dalio, recently warned that the artificial intelligence (AI) sector is in a bubble trading range. Interestingly, Dalio did not advise investors to panic sell. He offered a more nuanced perspective: while current stock prices are indeed far above the intrinsic value of the companies, bubbles do not burst out of thin air, often requiring policy changes or catalysts such as wealth taxes to burst. His real concern is the challenges that investors who hold their ground may face. Historical experience shows that when the market is this irrational, the investment returns in the next ten years are often disappointing. Dalio specifically emphasized the importance of diversifying portfolios to include assets such as gold - the price of gold recently broke through $4,300 per ounce, reaching a historical high. This investment in CoreWeave shows that Bridgewater is actively seeking structural opportunities while remaining vigilant. CoreWeave focuses on building AI-specific data centers and has a close partnership with NVIDIA Corporation(NVDA.US), which perfectly aligns with the trend of exploding demand for massive computing power required for AI system development and operations. Bridgewater seems to be seizing this wave while using the founder's long-term warnings as constraints on investment decisions. Bullish Logic of CoreWeave CoreWeave's third-quarter revenue performance exceeded expectations, but the full-year performance guidance fell short of market expectations, leading the stock to decline last week. The AI infrastructure service provider achieved revenue of $1.36 billion in the September quarter, a significant increase of 134% year-over-year, higher than the market's expected $1.29 billion. Despite a strong quarterly performance, the company's management set the full-year revenue expectation range at $5.05 billion to $5.15 billion, falling short of analysts' forecast of $5.29 billion. The reason for the lower guidance was delays in the development of third-party data centers, with CEO Mike Intrator explaining that this delay involved "pre-installed power facilities" (buildings that had completed construction and were waiting for CoreWeave to install equipment). He emphasized that this issue is not due to power shortages but rather the delayed readiness of these partially completed buildings, affecting only one location out of CoreWeaves 41 data centers, with no substantial impact on the company's massive undelivered orders of $55.6 billion. CoreWeave's core business is leasing NVIDIA Corporation chips to AI research companies, with clients including Alphabet Inc. Class C(GOOGL.US), Microsoft Corporation(MSFT.US), and other large cloud service providers. This business model has proven to be highly effective, with the company securing several significant contracts in the third quarter: OpenAI expanded its cooperation by $6.5 billion, while Meta(META.US) signed a six-year agreement potentially worth $14.2 billion. On the profitability front, CoreWeave's net loss narrowed from $360 million in the same period last year to $110 million. Management expects that most of the construction delays will be resolved by the first quarter of 2026. To reduce reliance on external developers, CoreWeave is building its own data center in Pennsylvania to strengthen direct control over project progress. Chief Financial Officer Nitin Agrawal stated that the company's capital expenditures in 2026 will easily exceed twice this year's ($12 billion to $14 billion). Additionally, CoreWeave continues to expand its power capacity, with contracted power capacity reaching 2.9 gigawatts, a significant increase from 2.2 gigawatts three months ago. Is CoreWeave Stock Undervalued? According to analyst forecasts for CoreWeave, revenue is expected to grow from $5.12 billion in 2025 to $28 billion in 2028; adjusted earnings per share are projected to shift from a loss of $1.37 in 2025 to a profit of $4.01 in 2028. If calculated using a forward P/E ratio of 30 (a valuation level that is reasonable in the technology sector), the stock still has a 70% upside potential in the next two years. Among the 28 analysts covering CoreWeave's stock, 13 have a "strong buy" rating, 1 has a "moderate buy" rating, 13 have a "hold" rating, and 1 has a "strong sell" rating. The current average target price for the stock is $131.23, significantly higher than the current price of approximately $73.