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Bridgewater Associates founder Ray Dalio is sounding the alarm: the current surge in artificial intelligence–driven stocks has pushed markets into what he considers unmistakable bubble territory. Yet despite the warning, Dalio emphasized that investors should not rush to sell simply because valuations look stretched. Speaking on CNBC’s “Squawk Box,” he explained that historically, bubbles can continue for long periods, and exiting too early can be just as costly as staying in too long.

Dalio noted that when markets reach this level of exuberance, the next decade’s expected returns typically become very low. However, that does not automatically signal an immediate downturn. “Don’t sell just because there’s a bubble,” he cautioned, urging investors to look at broader economic conditions and potential catalysts rather than reacting to hype-driven valuations alone.

AI Frenzy Pushes Markets Higher

His comments arrived as Nvidia once again propelled the market upward. The chipmaker jumped more than 5% after reporting another round of better-than-expected earnings and issuing strong forward guidance. CEO Jensen Huang dismissed bubble concerns outright, saying the company sees “something very different” unfolding — a long-term secular shift in global computing needs.

The enthusiasm surrounding Nvidia and other AI giants has lifted the broader market as well. The Nasdaq Composite has surged nearly 17% this year, supported by continuous inflows into megacap technology names and investor demand for AI-linked growth stories. The rebound came after weeks of concern that the AI trade was slowing, but strong earnings reassured markets and restored momentum.

What Could Burst the Bubble?

While Dalio agrees the environment now matches his definition of a bubble, he also stressed that bubbles do not collapse on their own. There must be a trigger — some external force that disrupts confidence or capital flow. He added that traditional tightening from central banks is unlikely to be the cause this time. Instead, Dalio pointed toward rising discussions around wealth taxes as a potential long-term risk, noting that such policies could alter investment incentives and redistribute capital away from high-growth sectors.

For now, however, Dalio believes the bubble remains inflated but intact. “We don’t have the pricking of the bubble yet,” he said, emphasizing the importance of patience and strategic positioning rather than panic.

Diversification Still Matters

Dalio reiterated a long-standing principle: diversification is essential, especially during euphoric market cycles. He highlighted gold as one asset that remains underappreciated by many investors despite its recent performance. Gold prices have climbed to all-time highs this year, supported by geopolitical tensions, concerns over debt levels and global demand from both investors and central banks.

He suggested that allocating a portion of a portfolio to assets like gold can help protect against sudden shocks, especially in periods when high-growth sectors dominate headlines and valuations drift further into speculative territory.

For investors navigating today’s market, Dalio’s message is straightforward — recognize the bubble, respect the risks, stay invested strategically, and broaden exposure beyond the AI hype while the cycle still has room to run.