AI bubble, boom or both? Ray Dalio calls it a bubble, but says it’s too early to sell

Just as investors were bracing for an AI reckoning, Nvidia’s earnings shock pulled them right back into the trade. Now comes a warning from Bridgewater founder Ray Dalio, who says the market is “in that bubble territory,” but now is not the time to rush for the exit. Nvidia is growing, the Nasdaq is climbing and the AI ​​story has flipped again, from fear to madness and in between.Dalio said Thursday on CNBC’s “Squawk Box” that the furious pace of artificial intelligence spending has pushed markets firmly into bubble territory, but investors shouldn’t rush to get money out.

“Don’t sell just because there’s a bubble,” Dalio said. “But if you look at the correlations with returns over the next ten years, if you are in that area you get very low returns.”Dalio emphasized that bubbles do not burst on their own because they require a catalyst. “The picture is quite clear because we are in bubble territory,” he said. “But we are not yet busy bursting the bubble.”

He added that tighter monetary policy is unlikely to be the trigger this time around, but pointed to the possibility of higher wealth taxes as a factor that could ultimately upset market equilibrium.

As a hedge, Dalio said investors should consider broader diversification, including exposure to gold, which has already soared to record highs this year. Nvidia rejects bubble talk and revives risk appetite. Dalio’s comments came as Nvidia rose more than 5% on better-than-expected earnings and guidance, reigniting enthusiasm among global tech stocks.

Chief Executive Officer Jensen Huang brushed aside concerns about the bubble, telling analysts on Wednesday: “We are seeing something very different.”

Nvidia’s rally lifted the broader market, with Wall Street appearing to ignore fears that AI trading was faltering. The tech-heavy Nasdaq Composite is now up nearly 17% through 2025, driven by gains in mega-cap tech stocks and renewed excitement around artificial intelligence.

India is watching volatility

The sharp swings in global tech markets are also being felt in India, where volatility has risen alongside turbulence on the Nasdaq – the barometer of AI trading.

“Market volatility has increased. Nasdaq, the barometer of AI trading, closed 2.15% lower yesterday, crashing 4.4% from its intraday peak. These types of market moves are a signal of more volatility in store,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

Vijayakumar acknowledged the conflicting stories, bubble warnings on the one hand and Nvidia’s confidence on the other.

“While there are concerns about the valuation of AI stocks, with many experts warning of the bursting of the bubble, Nvidia’s CEO disagreed with this cautionary note, stating ‘we are seeing a different picture characterized by the sustainable rise of advanced AI systems.’ At lower valuations, new purchases in AI shares may arise. We will have to wait and see how this volatile phase will unfold,” Vijayakumar said, flagging speculative excesses in the Indian market, especially in newly listed names.

Vijayakumar said India, which has underperformed in this year’s AI-led rally, could benefit as global money starts turning away from busy AI trades.

Also read | AI doomsday? Not yet. Why Nvidia results are dragging the tech bulls back to work

“Given that India is underperforming in AI trading this year, India will benefit if AI trading disappears and money starts flowing into non-AI stocks in countries like India. But a major crash would impact all markets. So just wait and see how things develop.”

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)