Billionaire investor Ray Dalio says there’s one reason not to sell stocks, even if you’re worried about an AI bubble
Ray Dalio thinks you shouldn’t give up on AI just yet, even if you’re worried that the market craze is a bubble waiting to burst.
The billionaire investor and Bridgewater Associates founder said he believed stocks were definitely mired in a bubble today — but that’s still no reason for investors to get out of the AI trade, he said, speaking to CNBC on Thursday.
To Dalio, there’s a simple reason why investors should stay in the market: the conditions for a bubble to pop simply aren’t there right now, he told the outlet.
“Don’t just sell because of the bubble,” the legendary fund manager said. “You have to go to the timing. What is it that pricks the bubble? Right? Typically a tightening of monetary policy. We’re not going to have that now.”
Dalio has repeatedly flagged the risk of a bubble brewing in the stock market this year.
Roy Rochlin/Getty Images for Nicole Lapin
Dalio, who has repeatedly warned of a bubble brewing in risk assets, said he defined a market bubble as a lot of wealth creation stemming from a new development. Over time, questions begin to arise over who owns the wealth and who needs it, he said.
That fits closely with the dynamic unfolding in the generative AI space, where hype for AI has sent valuations for some tech companies into the stratosphere.
In recent weeks, investors have grown more concerned about the monetization plan for some of these companies, as well as the fact that many deals in the sector look circular in nature.
In Dalio’s view, market bubbles finally pop when there’s a need to liquidate assets. Events like the Fed raising interest rates or consumers being hit by a wealth tax could trigger that selling, he speculated.
Both conditions look to be absent in markets in the foreseeable future. While a December Fed rate cut has come under scrutiny over incomplete and strong job market data, markets are pricing in a 96% chance that rates will be lower from their current levels by June of next year, according to the CME FedWatch tool.
A wealth tax on billionaires has been proposed in California, but the extension of President Donald Trump’s tax cuts and other stimulus measures in the president’s “Big Beautiful Bill” are a bullish force supporting markets, analysts have said.
“I want to reiterate, a lot can go up before the bubble bursts,” Dalio added.
Talk of a stock market bubble has become omnipresent on Wall Street as investors eye lofty valuations in the tech sector and concerns grow about the billions being poured into AI investments.
Nvidia, a bellwether for the AI trade, has mollified many investors for now after the chip giant reported another quarter of stellar results. In the third quarter, the firm pulled $57 billion in revenue, a 62% year-over-year increase, and estimated it would pull $65 billion the following quarter, beating analysts’ estimates.
