Is the AI bubble about to burst? Dalio: The bubble indicator has reached the level of the year 2000—pay attention to changes in the Taiwan Strait issue

Bridgewater Fund founder Ray Dalio warns that the AI bubble will burst due to a liquidity crisis rather than technological failure. The U.S. fiscal deficit, political power struggles after the midterm elections, and the geopolitical risks in the Taiwan Strait could all trigger cascading sell-offs across all risk assets.

Bridgewater Fund founder Ray Dalio (Ray Dalio) again warns that the AI bubble will eventually burst, but not because of technical failure—instead, it will happen at the moment investors try to convert their sold stock holdings into cash. In an interview with Bloomberg TV, he pointed out that a liquidity crisis is the real threat, and that the U.S. fiscal deficit and pressure on the bond market are bringing this risk ever closer.

Wealth is not the same as cash: The fine line between the reality and illusion of AI valuations

Dalio first identifies a core problem that the market has long overlooked: “Wealth and cash are two different things.” A startup can build a book valuation as high as $1 billion with only $50 million raised; but that figure cannot be used to spend or to pay off debts. To turn wealth into usable funds, holders must first sell the assets.

When the rate at which wealth grows far exceeds the growth of the money supply, the entire financial system becomes extremely fragile. This is the biggest risk in the current AI boom: AI companies can create book valuations worth trillions of dollars in a short time, yet may not hold enough real cash to back them.

Bridgewater estimates that AI infrastructure investment by Alphabet, Amazon, Meta, and Microsoft in 2026 will reach about $650 billion, up sharply from $410 billion in 2025—indicating that the scale of capital deployment is rising at an unprecedented pace.

What force will pop the AI bubble?

Dalio clearly states that the trigger point for the AI bubble to burst will not be a failure of the technology itself, but rather external liquidity pressures. When large asset holders are forced to sell assets at the same time for various reasons, the market will experience a domino effect.

Dalio points out that, when debt-servicing pressure forces institutions or individuals to sell and liquidate, when a government imposes a wealth tax leading to sudden sell-offs, or when fund investors redeem at large scale, this could trigger a chain reaction.

However, every great technological transformation creates bubbles. Because no one can precisely time the market, in order to capture market share, large amounts of capital must be poured in.

He further links this risk to the U.S. government’s fiscal predicament. The United States spends about $7 trillion every year but earns only about $5 trillion—this $2 trillion deficit forces more new debt into a bond market that is already tight. The rise in long-term interest rates relative to short-term rates is a pressure signal he has long observed, and it also aligns with his earlier warnings about the collapse of the global monetary order.

Dalio said that his bubble indicators have now reached levels comparable to the tech bubble of 2000 and the period just before the Great Crash of 1929.

• **Further reading:**The prototype of the main character behind the big short: The AI boom looks just like the internet bubble! Reduce holdings in tech stocks; not recommended to short

Dalio calls out a political risk window: the market is most fragile after the midterm elections

Dalio also specifically points to a concrete high-risk timing: “After the U.S. midterm elections are over, and before the next presidential election.” He believes that political power struggles over tax policy during this period will be the most intense, likely further exacerbating market liquidity pressures and becoming a catalyst that sets off the bubble.

In addition, he also raises geopolitical concerns regarding the Taiwan Strait: “Once Taiwan is forced to stop exporting chips, AI stocks will experience a rapid and severe crash.” Although this risk has not come true, it has always been a variable hanging over investors’ minds globally and difficult to ignore.

The impact reaches all risk assets; even Bitcoin is not immune

Dalio emphasizes that once this liquidity crisis erupts, its impact will not be limited to AI stocks—it will spread to all risk assets, including both stock and cryptocurrency markets. Even though Dalio believes that in a long-term environment where fiat currency depreciates, holding Bitcoin is still better than holding cash, emphasizing “gold is the only gold” and the most reliable hedge asset.

Despite the severity of the warnings, Dalio believes investors do not need to panic and sell; they only need to be psychologically prepared for the possibility that future returns will continue to decline.

• This article is reprinted with authorization from: 《Chain News》
• Original title: 《SpaceX IPO countdown to raise $75 billion! Bitcoin holdings and liquidity risks in focus》
• Original author: Crumax