Key Takeaways:
- The artificial intelligence (AI) boom is in the early stages of a bubble, according to hedge fund manager Ray Dalio
- U.S. stocks underperformed non-U.S. equities and gold in 2025, with gold surging over 60% and emerging markets posting a banner year
- Global stocks are seeing increased volatility due to concerns over an AI stock bubble, geopolitical tensions, and uncertainty over U.S. Federal Reserve interest rate policy
- Investors are expected to seek opportunities in undervalued pockets of financial markets as concerns over an AI bubble grow
- Bridgewater Associates’ main macro funds delivered a record-breaking performance in 2025
Introduction to the AI Bubble
The artificial intelligence boom that has been driving Wall Street’s technology stocks is "now in the early stages of a bubble," according to hedge fund manager Ray Dalio. In a post on social media platform X, Dalio warned that the current state of the market is reminiscent of previous bubbles, and that investors should be cautious. As he wrote, "Clearly, investors would have much rather been in non-U.S. stocks than in U.S. stocks, just as they would have preferred to be in non-U.S. bonds than in U.S. bonds and U.S. cash." This warning comes as Wall Street’s main indexes posted double-digit gains in 2025, marking a third straight year of advances, a run last seen during 2019-2021.
Market Performance in 2025
The gains in 2025 were fueled by heavy investor demand for AI-linked stocks, which pushed U.S. equity benchmarks to record highs. However, Dalio notes that U.S. stocks significantly underperformed non-U.S. equities and gold in 2025. Gold surged more than 60% last year, while emerging markets posted a banner year and Britain’s blue-chip FTSE 100 outperformed major global markets. This disparity in performance has led some to question the sustainability of the current market rally. As Dalio said, "Of course, there are big questions about Fed policy and productivity growth ahead." The uncertainty surrounding the U.S. Federal Reserve’s interest rate path has added to investor unease, with many wondering how the newly appointed Fed chair and the Federal Open Market Committee (FOMC) will approach monetary policy.
Geopolitical Tensions and Market Volatility
Global stocks have been seesawing in recent months as mounting concern over a potential AI stock bubble has dragged on sentiment and raised the risk of a selloff. Geopolitical tensions in the Middle East have also contributed to market volatility, making it difficult for investors to navigate the complex landscape. As Dalio noted, "It appears most likely that the newly appointed Fed chair and the FOMC will be biased to push nominal and real interest rates down, which would be supportive to prices and inflate bubbles." This has led some analysts to warn of a potential bubble in the AI sector, as investors become increasingly cautious and begin to look for opportunities in undervalued pockets of the market.
Investor Strategies for 2025
As concerns over an AI bubble grow, global investors are expected to actively seek opportunities in undervalued pockets of financial markets. This may involve looking beyond highly valued technology stocks and exploring other sectors that have been overlooked in recent years. According to analysts, this shift in investor strategy could lead to increased volatility in the market, as traders and investors adjust their portfolios to account for the changing landscape. As Dalio’s comments suggest, the current market environment is complex and uncertain, and investors will need to be cautious and strategic in their approach.
Bridgewater Associates’ Performance
Bridgewater Associates, the hedge fund co-founded by Ray Dalio in 1975, delivered a record-breaking performance in 2025. According to Reuters, the firm’s main macro funds posted impressive gains, outperforming the broader market and demonstrating the effectiveness of Dalio’s investment strategy. This performance is a testament to the firm’s ability to navigate complex market environments and identify opportunities in undervalued sectors. As the market continues to evolve and the AI bubble grows, it will be interesting to see how Bridgewater Associates and other investors adapt and respond to the changing landscape.
Conclusion
In conclusion, the artificial intelligence boom that has been driving Wall Street’s technology stocks is in the early stages of a bubble, according to Ray Dalio. The current market environment is complex and uncertain, with geopolitical tensions, uncertainty over U.S. Federal Reserve interest rate policy, and concerns over an AI bubble all contributing to volatility. As investors navigate this landscape, they will need to be cautious and strategic in their approach, seeking opportunities in undervalued pockets of the market and adjusting their portfolios to account for the changing environment. As Dalio’s comments suggest, the next year will be critical in determining the trajectory of the market, and investors will need to be prepared for a range of possible outcomes.
https://www.reuters.com/business/ai-boom-is-early-bubble-phase-bridgewater-founder-ray-dalio-says-2026-01-05/