Artificial intelligence enthusiasm is accelerating in ways reminiscent of extreme market periods, according to recent observations. Bridgewater Associates founder Ray Dalio described this surge as placing AI in what he called the "early stages of a bubble" in a post on X.
Dalio shared this view while reflecting on market developments, noting that currencies and global capital flows currently play a larger role than U.S. stocks and AI-related companies. Questions around an AI bubble have focused on how quickly companies can translate adoption into profits, with an MIT study finding last year that 95% of generative AI pilot programs had not yet produced profits.
In a November interview with CNBC, Dalio said AI could still have far-reaching effects on productivity and economic growth. At the same time, he said the rapidly rising valuations of major technology companies could face pressure before businesses fully integrate AI into their operations. Dalio said he viewed the AI bubble as being at "about 80%" of the euphoria that preceded the 1929 stock market crash and the 2000 dot-com bubble.
Dalio also raised questions about U.S. monetary policy in his X post, writing that the Federal Reserve's stance remains a key unknown for markets. Federal Reserve Chair Jerome Powell is set to see his term as chair expire in May, though he could remain a governor on the central bank's board until early 2028. President Donald Trump has said his pick to succeed Powell would be "someone who believes in lower interest rates, by a lot."
Dalio wrote that a more accommodative policy environment could continue supporting share prices and contribute to further market excesses. Looking ahead, Dalio emphasized diversification and pointed to gold as a reference point. Gold ended the year as the "best-performing major market," rising alongside other precious metals such as silver and platinum.
Dalio wrote that gold outperformed the S&P 500 by 47% last year, reducing the strength of U.S. stock returns when viewed against harder currencies. He also highlighted the impact of a weaker dollar. The U.S. currency fell about 10%, weighed down by interest-rate cuts and uncertainty over trade policy. Dalio wrote that currency weakness can distort how returns appear to investors.
"When one's own currency goes down, it makes it look like the things measured in it went up. In other words, looking at the investment returns through the lens of a weak currency makes them look stronger than they really are," he wrote.
Dalio pointed to overseas markets that outperformed the U.S., including Europe, China, the U.K., and Japan. Emerging markets posted the strongest gains last year, with the benchmark MSCI Emerging Markets Index rising about 34%, roughly double the S&P 500's return. "There were big shifts in flows, values, and, in turn, wealth away from the U.S., and what is happening will probably lead to more rebalancing and diversifying," he wrote.