Ray Dalio says we’re nearing point where AI bubble may burst

[SINGAPORE] Billionaire Ray Dalio warned that artificial intelligence is a “classic bubble” that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash.

Speaking at the Forbes Global CEO Conference in Singapore on Wednesday (Oct 7), Dalio said that a huge amount of debt is being taken out to fund AI. As rates continue to climb, that is a point at which the bubble begins to pop.

“We’re in the part of the cycle that is before that but approaching that,” the Bridgewater Associates founder said. “I think we’re close to that.”

His comments come as technology giants spend hundreds of billions of dollars on AI, increasingly financed with debt, and as market gains concentrate in a handful of stocks.

Bond yields around the world have surged to the highest in decades, increasing the cost of funding the enormous investment needed to build AI infrastructure.

Still, equity valuations continue to rise, with optimism over technology earnings propelling the S&P 500 Index and Nasdaq 100 Index to record highs this week.

Dalio, who has long warned of an AI bubble, said there were other issues that could trigger its collapse.

Those include wealth taxes and other efforts to convert unrealised gains into cash.

“Everybody says ‘I’m worth a billion dollars’ but OK, try to spend that,” he added.

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“In order to spend that you have to sell wealth in order to get money – and so the bubble usually pricks at that.” BLOOMBERG