Dalio believes that although the AI industry shows signs of a bubble, attention should be paid to the catalysts for a potential bubble burst—monetary tightening or forced asset sales to meet debt obligations.

Written by: Bao Yilong

Source: Wall Street Watch

Bridgewater Associates founder Dalio warns that the global economy will face dangerous situations in the next one to two years, but he advises investors not to hastily exit AI investments solely due to high valuations; instead, they should focus on substantial signals of a bubble burst.

In an interview with CNBC on Monday, Dalio stated that the current market is showing cracks in multiple areas, including private equity, venture capital, and the debt sector that is undergoing refinancing, influenced by the overlapping cycles of debt, political conflict, and geopolitical tensions.

Dalio pointed out that the global debt burden has begun to exert pressure in specific market segments, with governments unable to raise taxes or cut benefits, leading to fiscal distress. This structural contradiction is exacerbating domestic political polarization, with the rise of left-wing and right-wing populism indicating irreconcilable differences.

As the 2026 U.S. midterm elections approach, Dalio expects political conflicts to intensify further. The high-interest-rate environment and the concentration of market leadership are further amplifying this vulnerability.

Investment Strategies in a Bubble

Dalio believes the current bubble is similar to the tech bubble of 2000, but not as severe as that of 1929.

While acknowledging that the AI industry has entered a bubble zone, Dalio emphasizes that investors should not rush to exit just because of inflated valuations. He states that all bubbles in history have occurred during periods of technological upheaval, and the key is to identify the signals of a bubble burst.

He notes that the catalysts for a bubble burst typically come from monetary tightening or forced asset sales to meet debt obligations.

Recently, several market participants have warned about the AI bubble, including OpenAI CEO Sam Altman, who also hinted at signs of a bubble in the market. Investor Michael Burry, who accurately predicted the 2008 subprime mortgage crisis, expects the AI market bubble to potentially collapse within the next two years.

Dalio specifically warns to pay attention to the pressures in venture capital, private equity, and commercial real estate, where low-cost debt is facing the dilemma of rolling over at higher interest rates.

The Middle East Rising as the "Silicon Valley of Capitalists"

While warning of risks, Dalio compares the rise of some Middle Eastern countries to Silicon Valley, stating that the region is rapidly becoming one of the most influential AI centers in the world.

He noted that the UAE and its neighboring countries are combining vast pools of capital with a global influx of talent, attracting investment managers and AI innovators. Dalio stated:

There is a vibrancy here, very similar to San Francisco, with an atmosphere centered around AI and technology.

He described the UAE as a "paradise in a turbulent world," praising its leadership, stability, quality of life, and ambition to build a globally competitive financial ecosystem.

This year, the UAE and Saudi Arabia launched projects worth hundreds of billions of dollars to build cloud computing, data centers, and other AI infrastructure, supported by sovereign wealth capital and global tech partners.

Google Cloud and the Saudi Public Investment Fund announced a $10 billion agreement this year aimed at establishing a "global AI center" in the country. Earlier this year, OpenAI, Oracle, NVIDIA, and Cisco collaborated to build a large "Stargate" data center park in the UAE.

Dalio believes that the transformation in the Gulf region is the result of a thoughtful national strategy and long-term planning. He pointed out:

What they are doing is cultivating talent. This region is becoming the Silicon Valley of capitalists. Now, capital is flowing in, and talent is pouring in.

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