Ray Dalio says a risky AI market bubble is forming, but may not pop until the Fed tightens

Bridgewater Associates founder Ray Dalio on Tuesday warned that a bubble could be forming around megacap technology in the U.S. amid the artificial intelligence boom, but said that it may not end until the Federal Reserve reverses its current easy policies.

“There’s a lot of bubble stuff going on,” Dalio told CNBC’s Sara Eisen in an exclusive interview from the Future Investment Institute in Riyadh, Saudi Arabia. “But bubbles don’t pop, really, until they are popped by tightness of monetary policy and so on.”

Added Dalio, “We’re going to be more likely to ease rates than to tighten rates.”

The hedge fund titan said he uses a personal “bubble indicator” that’s relatively high right now. Dalio joins a growing chorus of well-known market participants that have cautioned about the potential for a bubble tied to AI spending in recent months.

The Fed is set to cut rates for a second time this year on Wednesday and many investors expect the central bank it will do so again at its final meeting of the year in December.