Ray Dalio Warns of an AI Bubble, Allocates 1% of Portfolio to Bitcoin, Gold

Billionaire investor Ray Dalio warned that excessive investment around artificial intelligence could produce a market bubble.

The Bridgewater Associates founder said revolutionary technologies often attract speculative capital before investors understand which companies will generate sustainable profits.

Dalio also discussed Bitcoin and gold as assets that could protect investors from currency depreciation and rising government debt.

However, he did not say that Bitcoin and gold together represented only 1% of his portfolio. Dalio previously said Bitcoin alone accounted for about 1%, while describing gold as his preferred store of value.

Ray Dalio Warns of an AI Bubble

Dalio discussed artificial intelligence during an appearance on The Diary of a CEO podcast. He compared the current investment cycle with earlier periods when revolutionary technologies attracted large amounts of speculative capital.

Dalio discussed artificial intelligence during an appearance on The Diary of a CEO podcast. He compared the current investment cycle with earlier periods when revolutionary technologies attracted large amounts of speculative capital.

Dalio said new technologies can produce genuine economic progress while still creating unsustainable asset valuations.

The dot-com boom offers one example. Investors poured capital into internet companies during the late 1990s, often without examining their revenue or profitability.

The Nasdaq later collapsed as many companies failed. However, the internet continued to reshape commerce and communication after the market correction.

A similar pattern appeared in the cannabis sector. Companies such as Tilray Brands, Trulieve Cannabis and Green Thumb Industries reached multibillion-dollar valuations as investors anticipated rapid legalization and market growth.

Many cannabis stocks later fell sharply as profitability, regulation and financing conditions failed to meet earlier expectations.

Dalio also compared the current environment with the period preceding the Great Depression.

Automobiles, electricity and mass production were transforming the economy during the 1920s. Those developments supported rapid productivity growth but also encouraged leverage and speculation.

The comparison does not mean Dalio expects AI to fail. It suggests that transformative technologies can remain valuable even when related stocks become overpriced.

Has the AI Bubble Started to Burst?

There are signs that the AI bubble is starting to burst already. For one, the biggest companies in the industry have plunged by double digits. For example, Nvidia stock has dropped by 20% from its highest level this year.

The same is happening in the memory sector, where companies like Samsung Electronics, SK Hynix, Micron, and SanDisk have plunged into the double digits from their year-to-date highs.

Meanwhile, Oracle, which has accumulated over $638 billion in backlog, has dropped by over 60% from its peak. There are also rumors that OpenAI is preparing to delay its IPO until next year.

Top companies in the AI industry like Palantir, C3.ai, Adobe, and Salesforce have also plunged in the past few months.

Still, some analysts argue that we are not in an AI bubble. For one, unlike in the dot-com bubble, companies in the industry are making money. For example, a recent report showed that Anthropic is making a fortune. Analysts expect it to make $71 billion in revenue this year, higher than companies like Starbucks, McDonald’s, and Yum Brands.

Ray Dalio Has Invested in Bitcoin and Gold

Meanwhile, Dalio noted that he has invested money in Bitcoin and gold. He said that he has invested 1% of his portfolio in Bitcoin. He believes that Bitcoin is money that you cannot print or crack using technology.

Dalio also noted that Bitcoin was one of the few financial assets that are nobody’s liabilities. Also, he believes that Bitcoin is a good store of value and a hedge against inflation.

The only caveat, however, is that he believes that gold is a better investment than Bitcoin. For one, governments can easily block or tax transfers of Bitcoin in the future. He also cautioned that technologies like quantum computing could crack Bitcoin in the future. This makes it hard for central banks to hold it in the future.

On the other hand, gold, as a hard asset, cannot be hacked and has a long track record of stability.