Ray Dalio, the billionaire founder of Bridgewater Associates, warned on Thursday that financial markets, particularly sectors tied to artificial intelligence, are “definitely in a bubble.”
But despite the froth, he cautioned investors against exiting their positions prematurely, arguing that the conditions needed for a major selloff are not yet in place.
Dalio said in a CNBC interview that bubbles are typically defined by a rapid creation of paper wealth tied to a transformative new technology or development. “Don’t sell just because there’s a bubble,” he said. “But if you look at correlations with the next 10 years’ returns, when you are in that territory, you get very low returns.”
Dalio emphasized that bubbles do not burst on sentiment alone. Instead, they require a trigger, usually a sharp tightening of monetary policy or a shift in taxation that forces asset liquidation. “You have to go to the timing,” he said. “What is it that pricks the bubble? Typically a tightening of monetary policy. We’re not going to have that now.”
His comments came during a powerful rally in tech stocks following Nvidia’s latest blockbuster earnings report. Shares of the chipmaker — widely viewed as the bellwether of the global AI boom — surged more than 5% on Thursday after the firm posted better-than-expected results and upbeat guidance. Nvidia CEO Jensen Huang dismissed concerns that AI-linked equities are exceeding fundamental value, saying analysts “see something very different” from the typical hallmarks of speculative excess.
The earnings boost helped lift broader markets. The Nasdaq Composite, already up nearly 17% so far in 2025, has been propelled by megacap technology names benefiting from sustained enthusiasm around generative AI. Recent worries that the AI trade might be losing steam have eased, at least temporarily.
While Dalio acknowledged that current valuations — particularly in AI — reflect classic bubble conditions, he noted that the major catalysts for a downturn are not visible. Markets broadly expect interest rates to fall rather than rise next year. According to the CME FedWatch tool, traders are pricing in a 96% probability that the Federal Reserve will lower rates from current levels by June.
Meanwhile, political developments also appear supportive of continued market strength. Proposals for wealth taxes have emerged in states such as California, but analysts say the extension of President Donald Trump’s tax cuts and stimulus measures in the administration’s “Big Beautiful Bill” could offset that pressure. “We don’t have the pricking of the bubble yet,” Dalio said.
Dalio has repeatedly warned over the past year that unprecedented amounts of capital flowing into AI and other high-growth sectors resemble past speculative cycles. Concerns have grown over whether companies heavily invested in AI can translate technological breakthroughs into sustainable revenue. Some deals in the sector appear “circular,” Dalio noted, with firms buying from, investing in, and selling to one another.
In his view, the bubble will eventually burst when a need for forced liquidation emerges — a scenario he believes is not imminent. “A lot can go up before the bubble bursts,” he said, urging investors to maintain diversification through assets such as gold, which has hit record highs this year as a safe-haven hedge.
Nvidia’s massive earnings have helped tamp down fears that the AI trade is peaking. The chip giant generated $57 billion in revenue in the third quarter, up 62% from a year earlier, and forecast $65 billion for the fourth quarter — well ahead of analysts’ expectations.
For now, Dalio’s message is clear: the bubble is real, but the exit point hasn’t arrived. Investors, he suggested, should stay invested — just not complacent.
