Dalio: AI Bubble at Risk from Liquidity, Not Tech

Ray Dalio, founder of Bridgewater Associates, said the current AI valuation run-up could reverse when holders must turn paper gains into cash. He framed the risk as a liquidity problem rather than a failure of AI technology itself.

Dalio distinguished between wealth as reported valuations and money that can be spent. Startups and firms can carry large paper valuations, but owners cannot use that value until they sell stakes or otherwise realize cash. When reported wealth grows faster than the money available in the system, he said, the market becomes vulnerable.

He listed events that could force selling: higher debt-service costs for large holders, the introduction of new wealth taxes, and waves of fund redemptions that push managers to sell positions. He warned those pressures could trigger rapid, large-scale sales of assets carrying high AI-related valuations.

“All great technology changes produce bubbles. And the reason they produce bubbles is because nobody can get it exactly right,” Dalio said, adding that companies often spend heavily to capture market share during major shifts.

Bridgewater has estimated that Alphabet, Amazon, Meta and Microsoft could increase AI infrastructure spending to about $650 billion in 2026, up from roughly $410 billion in 2025. Dalio noted that large planned investments can raise valuations while not creating corresponding cash buffers for shareholders and private investors.

He connected the liquidity concern to U.S. fiscal dynamics, citing roughly $7 trillion in government spending against about $5 trillion in revenue. Those deficits, he said, push more debt into the bond market. Dalio also pointed to a pattern of long-term interest rates rising relative to short-term rates as a historical signal that has preceded stress in other periods.

Dalio reported that his bubble indicators are near levels seen in 2000 and 1929 and identified a potentially vulnerable window after midterm elections and before the next presidential vote, when political disputes over taxes could increase selling pressure. He advised against panic selling but said investors should expect lower returns ahead.

He raised additional market risks tied to AI valuations, including the impact of a sudden halt in chip exports from Taiwan, which he said would quickly hit AI-related stocks. On digital assets, he reiterated a preference for Bitcoin as a form of “digital gold” compared with holding cash when investors seek alternatives. Dalio framed the possible unwinding of AI-era valuations as a function of who must sell and when, not as a direct indictment of the technology itself.