Staff Reporter
Wall Street’s enthusiasm for artificial intelligence has created a bubble in U.S. stock markets, reminiscent of the dotcom boom before the crash of the early 2000s, according to billionaire investor Ray Dalio in an interview with the Financial Times on Monday.
Dalio, founder of Bridgewater Associates and a prominent figure on Wall Street, highlighted that current valuations are high amid rising interest rate risks. He cautioned that this combination could “prick the bubble.”
The investment mogul noted that the current market cycle closely resembles the conditions of 1998 and 1999, just prior to the notorious dotcom bust.
“There’s a major new technology that certainly will change the world and be successful. But some people are confusing that with the investments being successful,” Dalio told the FT.
Ray Dalio’s warning comes as worries mount that investments in artificial intelligence (AI) may be overstretched. This sentiment has been amplified by the recent release of China’s DeepSeek AI, which unveiled its DeepSeek R1 model last week. This new AI technology reportedly matches the processing power of competitors like ChatGPT while operating on older hardware and at significantly lower capital costs.
In a stark illustration of market volatility, tech giant Nvidia (NASDAQ: NVDA), which has been at the forefront of the AI-driven valuation surge, saw nearly $600 billion wiped off its market capitalization on Monday.
The rapid rise of Nvidia and other tech stocks has contributed to the Nasdaq index doubling in value since early 2023, mirroring the explosive gains observed before the dotcom crash. As the excitement around AI continues, investors are urged to remain vigilant about potential market corrections.
The excitement surrounding the rise of the internet in the late ’90s fueled remarkable stock gains, only to be followed by a dramatic crash and a wave of high-profile bankruptcies. At that time, only a handful of companies managed to profitably leverage the internet’s potential.
Now, Wall Street’s tech giants have invested hundreds of billions of dollars in artificial intelligence (AI) technology over the past two years, yet returns on these investments have been limited. This excessive spending on AI has sparked concerns about dwindling profit margins across the sector.
A number of major U.S. tech firms—including Microsoft (NASDAQ: MSFT), Meta (NASDAQ: META), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Tesla (NASDAQ: TSLA)—are poised to announce their fourth-quarter earnings in the coming days.
