Bridgewater's Ray Dalio Warns: AI Revolution Is Real but Overvaluations and Leverage May Be Creating a New Bubble

July 31st - Ray Dalio, the founder of Bridgewater Associates, stated that AI has a revolutionary value in changing the means of production. However, he also pointed out that the current market has exhibited some characteristics that align with historical bubble patterns. Investors may overlook the gap between technological value and market price. When asset valuations are significantly higher than actual earning potential and face a tightening funding environment, the bubble risk may quickly become apparent.

Dalio noted that bubble bursts usually get amplified through the debt chain. As asset prices drop, it depresses the value of collateral, forcing highly leveraged investors to sell assets to repay debts, further driving prices down. If inflation rises again, prompting central banks to raise interest rates, higher financing costs could exacerbate market repricing.

He believes that the global economy is in a long-term "big cycle" characterized by debt accumulation, widening wealth gap, political divisions, and shifts in the international power structure. Investors should avoid concentrating wealth in a single asset and instead diversify their allocation through stocks, cash, gold, bonds, and real estate to mitigate risks. Gold, as a scarce hard asset, can play a role in risk diversification during periods of currency devaluation and increased financial pressure.

Regarding the job market, Dalio thinks that AI will replace some repetitive mental labor. In the future, an advantage will lie with those who can collaborate with AI and consistently adapt to change. He emphasized that even in an economic downturn, technological progress will not cease.