US-based hedge fund, Bridgewater Associates, founder and billionaire, Ray Dalio, in a recent interview with CNBC, said that there is an artificial intelligence (AI) bubble in the US stock market. However, investors have no need to panic-sell tech and AI stocks at this time.
Although the stock market and sectoral analysts may contest that there can be no bubble in a market without a future burst, and with Wall Street closing in on a correction path, investors are likely to look at this as a time to sell their holdings, according to a recent report from the news portal Fortune.
Dalio says not to sell right now?
Ray Dalio urged investors not to sell their holdings in tech and AI stocks on the basis of an existing bubble, while also shedding light that he expects investors to receive very low returns on their investment over the next 10 years.
“Don’t sell just because there is a bubble,” said Dalio. “But if you look at the correlations with the next 10 years’ returns, when you are in that territory, you get very low returns.”
The 76-year-old billionaire hedge fund founder, who has a net worth of $15.4 billion, as per Forbes data, explained how a bubble does not necessarily mean that an upcoming burst is on the way.
Is there a risk of a crash?
Ray Dalio explained how a situation of an AI bubble brings a set of unsustained circumstance for people buying the stocks, along with the unsustainable amount of valuations of the companies. However, every bubble also needs a catalyst for a burst.
“A bubble is an unsustained set of circumstances. It has an unsustainable amount of buying and has an unsustainable amount of valuation, and then there’s something that pricks the bubble,” Dalio said.
On the current backdrop of the US economy, Dalio said that a tightening monetary policy will not come in place in the near future, hence the need for cash can potentially be able to prick the bubble.
“The need for cash is always that which pricks the bubble, because when you have wealth, you can’t spend rough, you have to sell wealth in order to get the money to buy the things you need, or pay the bills you have,” he said.
Dalio highlighted that the US stock market is currently in an AI bubble, but there are no signs of a catalyst to prick that bubble as of this date.
“We are in that bubble territory, but we don’t have the pricking of the bubble yet,” said Dalio.
Similar to Dalio’s stance, JPMorgan Chase CEO Jamie Dimon earlier related AI to the early days of the internet, which turned out to be a “total payoff” while companies like Google, YouTube and Meta emerged as strong tech giants, according to the Fortune report.
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Key Takeaways
- Investors shouldn’t panic-sell tech and AI stocks despite existing bubbles.
- Bubbles can exist without immediate risk of bursting.
- Understanding the current economic backdrop is essential for informed investment decisions.
