Renowned billionaire investor Ray Dalio has sounded a cautionary note about artificial intelligence stocks in the United States, identifying what he calls an "AI bubble" in the current market environment. However, the founder of Bridgewater Associates has simultaneously advised investors against panic-selling their technology holdings despite the concerning assessment.
Why Dalio Sees Bubble Territory But No Immediate Crash
In a recent interview with CNBC, the 76-year-old hedge fund manager with a net worth of $15.4 billion according to Forbes data explained his nuanced perspective on the current market situation. Dalio defined a bubble as "an unsustained set of circumstances" characterized by unsustainable buying activity and company valuations that cannot be maintained over the long term.
"We are in that bubble territory, but we don't have the pricking of the bubble yet," Dalio stated, emphasizing that while conditions indicate bubble-like characteristics, the crucial catalyst that would trigger a market collapse appears to be absent for now.
The Critical Factor That Could Burst the AI Bubble
Dalio identified cash requirements as the potential trigger that could deflate the current AI stock bubble. "The need for cash is always that which pricks the bubble," he explained during the interview. "When you have wealth, you can't spend rough, you have to sell wealth in order to get the money to buy the things you need, or pay the bills you have."
The billionaire investor noted that with the current economic backdrop in the United States, a tightening monetary policy isn't expected in the near future, which means the conditions that typically lead to cash shortages and forced selling aren't currently present.
Long-Term Outlook: Prepare for Lower Returns
While advising against immediate selling, Dalio delivered sobering news about the potential returns investors might expect from their technology and AI investments over the coming decade. "If you look at the correlations with the next 10 years' returns, when you are in that territory, you get very low returns," he warned investors.
This perspective aligns with historical market patterns where periods of excessive valuation typically lead to diminished returns in subsequent years. Despite this cautious long-term outlook, Dalio's immediate advice remains clear: "Don't sell just because there is a bubble."
The Fortune report highlighted that Dalio's stance finds some resonance with other Wall Street leaders, including JPMorgan Chase CEO Jamie Dimon, who has compared the current AI revolution to the early days of the internet. Dimon noted that while the internet era eventually produced technology giants like Google, YouTube, and Meta, the transformation represented a "total payoff" for patient investors.
As Wall Street shows signs of entering a correction phase, Dalio's comments provide crucial context for investors navigating the volatile technology sector. His analysis suggests that while caution is warranted, panic-driven decisions could prove more harmful than riding out the current market conditions.
