Bridgewater founder Ray Dalio: The AI boom is currently in the early stages of a bubble, and the Federal Reserve will further inflate the bubble
Ray Dalio stated that the current artificial intelligence (AI) craze has entered the early stages of a bubble. In 2025, the U.S. stock market is expected to significantly underperform compared to non-U.S. stock markets and gold assets. Compared to U.S. stocks, investors are more willing to allocate to non-U.S. stocks; they are also more inclined to hold non-U.S. bonds. The new Federal Reserve Chair and the Federal Open Market Committee are likely to lean towards lowering nominal and real interest rates. While this move will support asset prices, it will also further inflate the bubble
Ray Dalio, the founder of Bridgewater Associates, warned on social media platform X on Monday that the artificial intelligence boom driving up Wall Street tech stocks is currently in the early stages of a bubble.
Major stock indices on Wall Street recorded double-digit gains in 2025, marking the third consecutive year of increases, the last time a similar trend occurred was from 2019 to 2021. This latest rally has been primarily driven by strong demand from investors for AI-related stocks, leading the benchmark indices of the U.S. stock market to reach new highs.
Dalio noted that the performance of the U.S. stock market in 2025 significantly lagged behind non-U.S. stocks and gold. Last year, gold prices surged over 60%, emerging markets had a stellar year, and the UK blue-chip index FTSE 100 also outperformed major global markets. Clearly, investors prefer to hold non-U.S. stocks rather than U.S. stocks; similarly, they are more inclined to hold non-U.S. bonds rather than U.S. bonds or cash in U.S. dollars.
Last autumn, as concerns about a potential bubble in AI stocks intensified, global stock markets experienced turbulence, dragging down investor sentiment and increasing the risk of sell-offs. Meanwhile, geopolitical tensions in the Middle East and uncertainty regarding the Federal Reserve's interest rate path have also heightened investor unease.
Dalio also stated, "Of course, there are still significant questions about future Federal Reserve policy and productivity growth. It seems most likely that the newly appointed Federal Reserve Chair and the Federal Open Market Committee (FOMC) will lean towards pushing nominal and real interest rates down, which will support asset prices while also fueling the bubble."
Analysts say that as concerns about the AI bubble deepen, investors will no longer be limited to tech stocks that are already highly valued but will actively seek undervalued investment opportunities in the financial markets this year.
Dalio co-founded Bridgewater Associates in 1975. An earlier article on the Wall Street Journal website mentioned that Bridgewater's main macro fund achieved impressive performance in 2025, recording the highest annual profit in 50 years under the leadership of current CEO Nir Bar Dea:
Bridgewater's flagship fund Pure Alpha II recorded a record return of 34%, sweeping away the sluggish trend of annual returns below 3% from 2012 to 2024.
The Bridgewater China Macro Fund and All Weather strategy fund also achieved returns of 34% and 20%, respectively
