On Wednesday, Bridgewater Associates founder Ray Dalio said that speedy development in AI-driven valuations could be making a bubble similar to past technology booms, where paper wealth grew faster than real money.
AI Boom May Be Following Classic Bubble Pattern
In a conversation with Bloomberg, Dalio said that major technological shifts often produce bubbles. This is because investors struggle to put a price on innovation in an accurate manner.
He continued saying that companies often feel pressured to spend aggressively to gain more share of the market while investors put money in related stocks, resulting in higher valuations.
“All great technology changes produce bubbles,” Dalio stated. He added that investors sometimes confuse supporting a technology with betting on its stock. This can become “expensive.”
What Triggers A Market ‘Pricking’
The investor went on to say that bubbles typically burst when investors are backed into a corner.
This could be, for example, when they are forced to convert assets into cash due to tighter financial conditions, debt pressures or policy changes such as taxes.
However, he also remained optimistic about AI’s long-term productivity gains.
Dalio did warn that the current surge in investment and valuations shows signs of overheating, with conditions slowly resembling levels seen during the dot-com era and early 20th-century market bubbles.
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