Investing.com-- Wall Street’s optimism over artificial intelligence has formed a bubble in U.S. stocks that echoes the build-up to the dotcom crash at the beginning of the century, billionaire investor Ray Dalio told the Financial Times on Monday
Dalio said valuations were high amid interest rate risks, a combination that could “prick the bubble.”
Dalio- who founded hedge fund Bridgewater Associates and is a major figure on Wall Street, warned that the current cycle on Wall Street appeared to be “very similar” to that seen in 1998 and 1999, before the dotcom bust at the turn of the millennium.
“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.
His warning comes amid growing concerns that investment in AI may be overstretched, especially as tech valuations were rattled by the release of China’s DeepSeek AI last week. The model- DeepSeek R1- appeared to have achieved similar processing power as rivals such as ChatGPT while running on older hardware and at a fraction of their capital costs.
Market major Nvidia (NASDAQ:NVDA), which has been at the heart of an AI-fueled valuation spike, wiped out nearly $600 billion in market capital on Monday.
Nvidia and gains in tech saw the Nasdaq double in value since early-203, mirroring gains seen during the run-up to the dotcom bust.
Hype over the emergence of the internet had driven stellar gains in stocks in the late-90’s, before a sharp crash in valuations and a series of high-profile bankruptcies, as only a small portion of companies were able to successfully and profitably capitalize on the internet.
Wall Street's internet giants have poured hundreds of billions of dollars in AI technology over the past two years, to limited returns on their investment. Stretched AI spending has also raised questions over their shrinking profit margins.
A slew of U.S. tech majors, including Microsoft (NASDAQ:MSFT), Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), and Tesla (NASDAQ:TSLA), are set to report fourth-quarter earnings in the coming days.