AI boom is in early bubble phase, Bridgewater founder Ray Dalio says

• Wall Street posted three straight years of gains through 2025, last seen in 2019-2021, driven by heavy investor demand for AI-linked stocks that pushed benchmarks to record highs
• U.S. stocks underperformed international equities in 2025, with gold rising over 60% and emerging markets posting banner years while Britain outpaced major global markets
• Dalio suggests the Fed and FOMC will likely push nominal and real interest rates down, which could support prices but also inflate bubbles, while analysts see investors seeking opportunities beyond highly valued tech stocks

Summary: AI Boom Enters Early Bubble Phase, Dalio Warns

Bridgewater Associates founder Ray Dalio warned on January 5 that the artificial intelligence boom driving Wall Street's technology stocks is "now in the early stages of a bubble." This assessment comes after U.S. equity benchmarks posted their third consecutive year of gains through 2025, a streak last seen during 2019-2021, fueled primarily by heavy investor demand for AI-linked stocks.

Key Performance Metrics:

Dalio noted significant underperformance of U.S. stocks relative to international markets in 2025. Gold surged more than 60% last year, while emerging markets delivered banner returns and Britain outperformed major global markets. This divergence suggests investors favored non-U.S. equities, bonds, and alternative assets over domestic holdings.

Market Implications:

The Bridgewater founder expressed concerns about Federal Reserve policy uncertainty and future productivity growth. He anticipates the newly appointed Fed chair and FOMC will likely bias toward pushing nominal and real interest rates down, which could support asset prices but potentially inflate existing bubbles further.

Global market sentiment has been challenged by mounting concerns over a potential economic slowdown, geopolitical tensions in the Middle East, and uncertainty surrounding the Fed's interest rate trajectory. Analysts indicate that global investors are actively seeking opportunities in undervalued market segments as AI bubble concerns prompt traders to look beyond highly valued technology stocks.

Despite these warnings, Bridgewater Associates' main macro funds reported record-breaking performance in 2025, according to late December reports. The hedge fund manager's commentary signals growing caution among sophisticated investors regarding AI-driven market valuations.