Ray Dalio Calls AI a ‘Classic Bubble,’ Says Higher Rates Bring Bust Closer

Billionaire investor Ray Dalio called the investment frenzy surrounding the artificial intelligence industry a "classic bubble," warning that rising interest rates and heavy debt loads could trigger its collapse.

Bloomberg reported on October 7 that Dalio, founder of Bridgewater Associates, told the Forbes Global CEO Conference in Singapore that enormous amounts of debt are being raised to finance AI investment. If interest rates continue to rise, he said, the market could reach the point where the bubble begins to deflate.

"We're not at that stage yet, but we're getting closer," Dalio said. "I think that moment is approaching."

Global technology companies have recently been pouring hundreds of billions of dollars into AI infrastructure, while debt has been making up a larger share of funding. At the same time, bond yields around the world have climbed to their highest levels in decades, raising financing costs for data centers and AI infrastructure projects.

Meanwhile, optimism about AI-driven growth has kept stock-market valuations elevated, especially among technology shares. Buoyed by bullish expectations for tech earnings, the S&P 500 and Nasdaq 100 both hit record highs this week.

Dalio also said the need to liquidate assets could become a catalyst for the AI bubble to burst, in addition to higher interest rates. He cited policies such as a wealth tax or measures that force unrealized capital gains to be converted into cash.

"Everyone says, 'I have $1 billion in assets,' but try spending that money," he said. "To spend it, you have to sell assets and turn them into cash, and that's usually when the bubble starts to burst."