Billionaire investor Ray Dalio issued a warning on Monday about a potential bubble in U.S. artificial intelligence (AI) stocks, drawing parallels with the dotcom bust of the early 2000s.
What Happened: Dalio, founder of Bridgewater Associates, has raised alarms over the soaring valuations of U.S. AI stocks, warning of a potential bubble fueled by high prices and interest rate risks.
"Where we are in the cycle right now is very similar to where we were between 1998 or 1999," Dalio told the Financial Times.
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Dalio compared the current scenario to the late 1990s, specifically between 1998 and 1999, when groundbreaking technology promised to revolutionize the world. However, he warned that the emergence of transformative technology does not always equate to successful investment opportunities.
His concerns come on the heels of the Federal Reserve's December decision to scale back expectations for rate cuts in the coming year, adding further pressure to an already volatile market.
Why It Matters: On Monday, Wall Street stocks tumbled after Chinese AI company DeepSeek announced that its latest AI model outperforms those of OpenAI and Meta Platforms META while being more cost-efficient. The news triggered a sharp decline in the market value of AI-focused chipmaker Nvidia NVDA.
Dalio, a long-time proponent of economic engagement with China, cautioned that the stakes in AI are exceptionally high. "The tech war between China and the US is far more important than profitability, not only for economic superiority, but for military superiority," he said.
Despite the market's reaction on Monday, a top analyst suggests that the demand for AI infrastructure will continue to rise. Deepwater Asset Management‘s managing partner, Gene Munster took to X, formerly Twitter, and said, “I believe the market is overreacting to DeepSeek’s success.”
Meanwhile, DeepSeek reported being targeted by "large-scale malicious attacks" on its services, coinciding with its growing prominence in the AI sector. The attacks coincided with outages on DeepSeek's website, which followed its AI assistant becoming the top-rated free app on Apple Inc.’s App Store in the U.S.
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