Editor’s Note: Ray Dalio, founder of Bridgewater Associates, recently gave an in-depth interview on the popular business podcast The Diary Of A CEO, sharing his views on the AI bubble, the 80-year long-term cycle, and Bitcoin. In the interview, Dalio revealed why we are currently in an AI bubble, outlined three key signs that the bubble is about to burst, and argued that although capitalists will be the biggest beneficiaries of AI-driven change, those with exceptional human intelligence and the ability to collaborate with others will still thrive in the future. Below is a curated translation of the key insights from Dalio’s interview—enjoy!
Learn from history: How did the AI bubble form?
The term "bubble" commonly refers to a situation where prices rise sharply, company performance is strong, and then the bubble bursts, impacting the economy and markets, often leading to a depression—such as the 1929 bubble or the 2000 dot-com bubble.
This happens whenever a revolutionary new technology emerges. During the dot-com bubble, we had equally amazing new technologies, and everyone bet it would succeed, rushing to invest—even taking out loans to do so—while ignoring the importance of price, which eventually soared and created a bubble.
We are equally excited about AI, and we should be, because it has brought—and continues to bring—revolutionary change. Similarly, everyone wants to invest in it, yet they still overlook price. This is the same underlying mechanism hidden within different cycles.
During an economic bubble, people take on massive debt to invest, and you’ll see many people appear wealthy—but this wealth isn’t equivalent to actual money, because they can’t spend it. When they’re forced to sell their assets to obtain cash, those assets lose value. So, when they need money for reasons such as tax changes, rising interest rates, or debt repayment, the bubble begins to burst and the market declines.
When the bubble bursts, the wealth accumulation process reverses, because when they made a lot of money, they had abundant assets with high value that could be used as collateral for loans, allowing the compounding effect to continue—but when the bubble bursts, this process also reverses.
Recessions often occur after a bubble bursts, because when people begin to repay debt and sell assets, consumer demand decreases, leading to reduced spending.
For example, during the Great Depression in the United States, the late 1920s were a time of great prosperity: households were electrified for the first time, refrigerators and lighting became common, and automobiles, airplanes, and radios were introduced to the masses. Everyone believed these technological innovations would have a brilliant future. Yet, at the same time, as people continuously bought assets and stock prices kept rising, many leveraged their investments by borrowing money to purchase stocks. Eventually, corporate profits could no longer support the inflated stock prices, triggering a chain reaction that ultimately led to the Great Depression.
What I mean is that in these massive shifts, people know very little, and anyone working in AI cannot plan with precision. They simply don’t know how much income they’ll ultimately generate, and only two outcomes emerge: either they underinvest and get left far behind by competitors, or they invest heavily but still fail to achieve precise control—and when that happens, problems arise.
3 Major Signs That the Bubble Has Burst
In the early stage, the factor that bursts the bubble is often a situation that forces people to sell off part of their assets to raise cash—typically rising interest rates. It could also be policies such as wealth taxes, but overall, it amounts to a tightening of liquidity. This is because, during this phase, inflationary pressures often prompt central banks to tighten monetary policy. As a result, when interest rates rise, the returns investors can earn from holding bonds exceed those from equity investments.
In addition, there has been a significant increase in stock issuance. We’ve been discussing how demand drives up stock prices and how wealth is created, but the market also has a supply side—companies can issue stocks, and there’s almost nothing easier to create wealth than issuing stocks. Today, people can even publicly announce the intention to start a company and take it public, then simply tell their audience, “I’m issuing shares.” It is this massive supply of stocks, along with increased corporate fundraising demands, that ultimately leads to the bursting of bubbles.
Another very typical way to assess the degree of a bubble is to examine who holds these companies’ shares—whether the ownership is concentrated among committed investors or among speculative retail traders. However, I also want to emphasize that bubbles are not a binary phenomenon; they exist on a spectrum.
A typical characteristic of unstable positioning is a large influx of retail investors lacking professional expertise, particularly through leveraged means—either by borrowing money to trade stocks or by purchasing leveraged financial products. For example, leveraged ETFs that track stock markets are currently available; investing in such products is essentially no different from gambling with dice.
All of these are key signs that a bubble is about to burst. When the bubble bursts, panic sets in across the market, leading to widespread asset liquidation. Conversely, at this point, all assets become cheap and affordable to everyone.
In investing, people often try to get ahead by buying too early, and this behavior frequently fuels further bubbles. Therefore, I’d like to add that the future is full of uncertainty—investors should not attempt to time the market. Even experienced investors find it extremely difficult to precisely predict when a bubble will burst. The best approach to dealing with bubbles is diversification.
Diversify your investments to prepare for a market bubble burst.
Many people believe that cash deposits are the safest asset, but over the long term, they are the worst investment because inflation erodes their value.
Beyond the stock market, investors have many other asset options, such as gold, bonds, real estate, and Bitcoin. The value of each of these assets fluctuates for various reasons, and typically, when gold rises, bonds tend to fall and property values decline—these movements follow certain patterns.
Therefore, the best approach is to build a diversified investment portfolio, which not only maintains potential returns but also reduces risk. Diversification means holding a proportion of each asset; because of their differing volatilities, investors must know how to balance them. My recommendation is to start by investing in real assets—gold.
Gold is fascinating because it often performs well when all other assets are struggling, making it a highly effective diversification tool. Gold cannot be hacked by technology—you can hold and own it, and it is the only financial asset that is not someone else’s liability.
Therefore, for most people, if they want to ensure they hold some "hard currency," gold should make up 5% to 15% of their investment portfolio.
Opinions on Bitcoin
Some investors view Bitcoin as "digital gold," but I prefer to invest in physical gold bars rather than Bitcoin.
Bitcoin is merely an asset similar to gold—it, too, is a form of money that cannot be printed—but certain technologies could compromise it; for example, if quantum computing emerges and governments can monitor it, it could be taxed. Any digital currency is somewhat similar in this regard.
Moreover, when governments say, “I don’t need Bitcoin,” they have the right to dispose of it as they see fit. Central banks around the world also avoid holding large amounts of such assets, as they must safeguard the confidentiality of their own transactions and maintain full control over them. Just look at Russia’s situation—its other assets have been seized or frozen, but its gold remains untouched.
Who benefits the most from AI transformation?
In this AI transformation, only a tiny fraction of people (less than one percent of the population) possess and can leverage cutting-edge technologies to accelerate their development. Everyone else, especially those in roles requiring critical thinking, are at risk of being replaced.
We are entering a world where everything can be automated. Human evolution began in the agricultural era, when there was little true innovation. Later, humans invented machines that replaced human physical labor. In the past, people toiled in fields like oxen, until they were replaced by tractors. Then we entered the industrial era: first, the invention of printing enabled people to access knowledge, followed by a wave of innovations that ushered in the First Industrial Revolution, during which machines began replacing human physical labor in factories, and so on.
Therefore, in my view, this is akin to machines first replacing human physical functions, then progressively taking over higher-level functions, and now beginning to replace those aspects of human thought that can be computerized—a trend that continues to evolve, gradually replacing increasingly sophisticated reasoning and cognitive abilities. This trajectory is part of an ongoing evolutionary process.
The ultimate beneficiaries are capitalists who have replaced the role of workers—for example, when people shop at stores, businesses receive revenue; but if we examine the share allocated to workers, we see it declining, while the share going to businesses is rising. Thus, we are experiencing a phase where, on one hand, the top tier is generating extraordinary wealth, and on the other, the bottom tier is facing immense pressure.
This is the challenge we face. Although the economic situation is relatively strong, it has become significantly harder for university graduates to find jobs—for example, new graduates traditionally required training to enter the workforce, but now many tasks can be quickly accomplished through artificial intelligence and automation. As robotics continue to advance, this trend will intensify; the unprecedented speed of disruption we’re witnessing today is driven by massive investments flowing into AI frontier models like Anthropic and OpenAI.
Meanwhile, the wealth gap is widening due to capitalism—although I love capitalism, the reality is that it creates vast disparities in income and wealth. Once a person’s labor, both mental and physical, is replaced, what is there left for them to sell as a human?
However, there’s no need to be overly pessimistic—humans still possess emotion and intuition, qualities that AI cannot replicate. So, if we explore what these “services” truly are—for example, can a robot provide a great massage or spa experience?—there’s still much left for us to discover. In any case, I believe that in the foreseeable future, those who possess exceptional human intelligence and can collaborate effectively with others will continue to thrive.
About the 80-year cycle
I previously mentioned that shifts in the global order occur roughly every 80 years, but this number is not precisely fixed—it has an average range of variation, much like human lifespan, where life expectancy and duration vary from person to person.
I won’t overemphasize the duration; I’m more focused on the current situation. Based on the symptoms or related indicators, where are we in this process right now? Where will the next important milestone occur?
The answer is near the current time period we are in.