Ray Dalio Says AI Bubble Is Close to Popping as Bond Yields Rise

Billionaire investor Ray Dalio, founder of Bridgewater Associates, said this week that artificial intelligence is a classic bubble nearing its bursting point, Bloomberg reported. He pointed to rising interest rates and the need to convert wealth into cash.

Dalio spoke at the Forbes Global CEO Conference in Singapore. He said markets are in the stretch of the cycle just before a pop but approaching it, and that he believes the bubble is close to that stage.

Rates and Cash-Outs as Pressure Points

Dalio said a huge amount of debt is being taken on to fund AI, and that climbing rates are the point at which a bubble begins to deflate.

Bloomberg said bond yields worldwide have surged to their highest levels in decades, raising the cost of financing AI infrastructure. The Motley Fool attributed the yield increase partly to higher energy costs and inflation tied to the war in Iran.

The second trigger Dalio described is the need to sell assets. Plenty of people count themselves as worth a billion dollars, he said, but spending that money means selling holdings, and bubbles usually burst at that moment.

He also named wealth taxes, such as one proposed in California, as a push for owners to turn unrealized gains into cash.

Borrowing Behind the Buildout

Meta Platforms, Alphabet, Amazon and Microsoft are on track to spend more than $700 billion on capital expenditures this year, the Motley Fool reported. Much of that goes to chips and data centers.

Apart from Microsoft, each of those companies has added more than $200 billion in debt over the past year, according to a debt chart in the Motley Fool article. Its author, Jeremy Bowman, wrote that OpenAI, Anthropic and SpaceX could pose the biggest risks.

He also noted that the leading AI companies are still posting strong, profitable growth.

Stocks Still Near Records

Bloomberg said optimism about technology earnings pushed the S&P 500 and Nasdaq 100 to record highs this week, with gains concentrated in a handful of stocks.

Dalio has warned about an AI bubble before, according to Bloomberg. The Motley Fool describes Bridgewater as the world's largest hedge fund, with assets under management of between $100 billion and $125 billion. Dalio no longer serves as its chief executive.