Ray Dalio warns AI boom is a ‘classic bubble’ nearing a breaking point

Billionaire investor Ray Dalio has warned that the rapid expansion of artificial intelligence investment resembles a “classic bubble” that could be nearing a breaking point as higher interest rates, rising debt and the need to convert paper wealth into cash put pressure on financial markets.

Speaking at the Forbes Global CEO Conference in Singapore on Wednesday, the Bridgewater Associates founder said the scale of borrowing to finance AI investment was becoming a key concern. He suggested that a sustained rise in interest rates could eventually expose vulnerabilities in the market and trigger a sharp correction.

“We are in the part of the cycle that is before that but approaching that,” Dalio said, adding, “I think we are close to that.”

Technology companies have committed hundreds of billions of dollars to AI infrastructure, computing capacity and related investments, with an increasing portion of the spending being supported by debt. At the same time, a significant share of recent stock-market gains has been concentrated in a relatively small group of technology companies.

Higher bond yields globally have added to the cost of financing the massive investments required to expand data centres, computing infrastructure and other AI-related capacity.

Despite these risks, equity valuations have continued to climb, with expectations of strong technology earnings helping push the S&P 500 and Nasdaq 100 to record levels this week.

Dalio, who has repeatedly cautioned about excessive optimism surrounding AI, said the potential triggers for a market decline extend beyond interest rates and corporate borrowing. He also pointed to wealth taxes and policies or circumstances that could force investors to convert unrealised gains into cash.

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

He explained that turning large amounts of paper wealth into cash could require investors to sell assets. If such selling occurs on a broad scale, it could put additional pressure on highly valued assets and accelerate the unwinding of a market bubble.

Dalio has also raised broader concerns about the US fiscal outlook. In June, he warned that the period between the 2026 midterm elections and the 2028 presidential election could prove particularly risky because of widening fiscal deficits, mounting government debt and weaker demand for US Treasury securities.

“I believe we are currently on the brink,” Dalio wrote on X at the time, warning that the monetary situation was becoming increasingly threatening.

His latest comments come as investors continue to balance strong enthusiasm for AI-driven growth against questions over the enormous capital spending required to build the infrastructure underpinning the technology.