Dalio: The global economy will be "on the brink" in the next two years; don’t rush to exit just because AI valuations are too high.

Written by: Bao Yilong

Source: Wallstreetcn

Bridgewater founder Ray Dalio has warned that the global economy will face dangerous conditions in the next one to two years. However, he advises investors not to rush to exit AI investments solely due to high valuations, but rather to focus on substantial signals of a bubble bursting.

In an interview with CNBC on Monday, Dalio said that due to the overlapping cycles of debt, political conflict, and geopolitics, cracks have already appeared in multiple areas of the market, including private equity, venture capital, and the debt sector undergoing refinancing.

Dalio pointed out that the global debt burden has begun to exert localized pressure on markets. Governments are unable to raise taxes or cut welfare, leading to fiscal distress. This structural contradiction is intensifying domestic political polarization, and the rise of left- and right-wing populism means irreconcilable differences.

As the 2026 US midterm elections approach, Dalio expects political conflict to intensify further. The high interest rate environment and the concentration of market leadership further exacerbate this vulnerability.

Investment Strategies in a Bubble

Dalio believes the current bubble is similar to the tech bubble in 2000, but not as severe as in 1929.

While acknowledging that the AI sector has entered bubble territory, Dalio emphasized that investors should not rush to exit just because of rising valuations. He stated that historically, all bubbles have occurred during periods of technological upheaval, and the key is to identify signals of a bubble bursting.

He noted that the catalyst for a bubble bursting is usually monetary tightening or forced asset sales to meet debt obligations.

Recently, several market participants have warned about an AI bubble, including OpenAI CEO Sam Altman, who has also hinted at signs of a bubble in the market. Michael Burry, the investor who accurately predicted the 2008 subprime crisis, expects that the AI market bubble may burst within the next two years.

Dalio specifically cautioned about stress in venture capital, private equity, and commercial real estate, where low-cost debt is facing the challenge of refinancing at higher interest rates.

The Middle East Rising as the “Silicon Valley for Capitalists”

While warning about risks, Dalio compared the rise of certain Middle Eastern countries to Silicon Valley, saying the region is quickly becoming one of the most influential AI hubs globally.

He stated that the UAE and its neighbors are combining vast pools of capital with an influx of global talent, attracting investment managers and AI innovators. Dalio said:

There is a kind of vibrancy here, much like San Francisco, with a very similar atmosphere centered around AI and technology.

He described the UAE as “a paradise in a turbulent world,” praising its leadership, stability, quality of life, and ambition to build a globally competitive financial ecosystem.

This year, the UAE and Saudi Arabia launched projects worth tens of billions of dollars to construct cloud computing, data centers, and other AI infrastructure, supported by sovereign wealth capital and global technology partners.

Google Cloud and the Saudi Public Investment Fund announced a $10 billion deal this year to build a “global AI hub” in the country. Earlier this year, OpenAI, Oracle, Nvidia, and Cisco teamed up to build a large “Stargate” data center campus in the UAE.

Dalio believes the transformation in the Gulf region is the result of thoughtful national strategy and long-term planning. He noted:

What they are doing is cultivating talent. This region is becoming the Silicon Valley for capitalists. Now, capital is flowing in, and so is talent.