Dalio: The "AI bubble" is very similar to the internet bubble, and the current situation is very much like 1998 or 1999
Ray Dalio warns that the investor enthusiasm driven by AI has created a "bubble" in the U.S. stock market, similar to the internet bubble of 1998 or 1999. He points out that the current market is overvalued, with interest rate risks that could lead to a bubble burst. Tech stocks surged in the 90s due to low interest rates and the proliferation of the internet, but valuations significantly corrected after the Federal Reserve tightened its policies. Dalio emphasizes that national support for AI development is inevitable, and companies focused on profitability may be at a disadvantage in the competition
Ray Dalio warns that the investor enthusiasm driven by AI has created a "bubble" in the U.S. stock market, similar to the formation process of the internet bubble around the turn of the millennium.
On Tuesday, Dalio stated in an interview with the Financial Times that the current market cycle is very similar to that of 1998 or 1999. Current pricing has reached high levels, and there is also interest rate risk; this combination could burst the bubble:
In other words, there is a significant new technology that will certainly change the world and succeed. But some people have confused this with investment success.
Stimulated by various factors such as low interest rates and increased internet penetration, the valuations of U.S. tech stocks surged in the 1990s, with the Nasdaq 100 index, which has a high proportion of tech stocks, doubling in 1999. However, after the Federal Reserve, led by Alan Greenspan, tightened monetary policy, tech stock valuations saw a significant correction, with the Nasdaq 100 index dropping 80% from its peak by October 2022.
Dalio also warned that the technological competition among major powers has made corporate profitability less important. Given the importance of winning the global race in AI, national support for developers is inevitable, even if it may come at the expense of profits.
Those who only focus on profitability will not win this race.
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