Bridgewater Associates founder Ray Dalio believes artificial intelligence spending has created bubble‑like conditions in financial markets.
Yet despite the froth, he cautions investors against rushing to liquidate their holdings.
Speaking with CNBC this week, Dalio argued that bubbles do not automatically translate into immediate losses, and that investors should remain disciplined rather than panic.
His comments arrive as Nvidia shares are losing steam despite strong earnings and upbeat guidance, as AI bubble and higher-for-longer interest rates concerns continue to weigh on tech stocks.
Why Dalio is against selling stocks outright
Dalio’s central message is that bubbles are not a signal to abandon positions wholesale.
“Don’t sell just because there’s a bubble,” he said, noting that while valuations may look stretched, history shows markets can stay elevated for extended periods.
According to him, markets currently lack the catalyst that would puncture the bubble, suggesting that without a clear trigger, elevated conditions could persist longer than sceptics anticipate.
On Squawk Box, Dalio pointed to long‑term return correlations, explaining that when assets reach bubble territory, forward returns tend to be muted.
Still, that does not mean investors should expect an immediate collapse.
Instead, he said, maintaining exposure while being mindful of risks is the more prudent approach.
His stance contrasts with alarmist calls to exit the market, emphasising patience and portfolio balance rather than reactionary selling.
What could burst the so-called AI bubble
While acknowledging that AI enthusiasm has inflated valuations, Ray Dalio stressed that bubbles require a catalyst to deflate.
He dismissed the idea that tighter monetary policy could be the trigger this time, arguing central banks are unlikely to deliver the kind of shock that would puncture current optimism.
Instead, he highlighted potential structural risks, such as higher wealth taxes, that could undermine investor confidence.
A wealth tax could puncture the bubble by directly reducing disposable capital among high‑net‑worth investors, curbing their ability to deploy funds into equities and speculative assets.
Such a policy shift would dampen demand, erode confidence, and potentially trigger portfolio rebalancing away from riskier positions, creating the catalyst needed to deflate inflated valuations.
Dalio explains the way to navigate bubbles
Dalio’s perspective underscores the importance of diversification in uncertain times.
He recommended that investors look beyond equities, highlighting gold as a reliable hedge.
The precious metal has surged to record highs this year, reinforcing its role as a safe‑haven asset during periods of market stress.
For investors navigating the AI boom, Dalio’s advice is clear: acknowledge the bubble, but don’t assume it will burst tomorrow.
Instead, balance exposure with defensive assets and prepare for a broad range of outcomes.
His comments serve as a reminder that bubbles are as much about psychology as fundamentals – and that disciplined strategy, not fear, should guide investment decisions.
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