Ray Dalio blames debt and rising rates for an AI bubble he says is close to bursting

At UBS's 10-year average, hyperscalers spent 40% of operating cash flow on capex and kept 60 cents of every operating dollar ^[15]. At close to 100% this year, they keep almost none of it, and the next dollar of the build-out comes increasingly from the bond market ^[11][14]. Speaking at the Forbes Global CEO Conference in Singapore on Wednesday ^[1], Dalio described that borrowed pile as still expanding, with its cost becoming a pressure point as rates climb ^[2]. "We're in the part of the cycle that is before that but approaching that," Dalio said, according to Bloomberg. "I think we're close to that." ^[3]

The borrowing is accelerating. If the five companies issue as much in the second half as the $200 billion they sold in the first ^[9], the year lands near $400 billion, close to four times their 2025 total ^[16]. Their first half alone is about 35% of the nearly $570 billion of AI-linked debt Morgan Stanley expects worldwide this year, a forecast more than double last year's ^[17][10]. The comparison is loose: five issuers' investment-grade bonds set against all AI-linked debt worldwide.

The second trigger works on shareholders. "Everybody says 'I'm worth a billion dollars' but OK, try to spend that," Dalio said ^[7]. "In order to spend that you have to sell wealth in order to get money," he said, adding that "the bubble usually pricks at that." ^[8] Forced selling of that kind would land on an index where Nvidia, Apple and Microsoft are more than a fifth of the weight ^[4]. The Wall Street Journal, in a line Semafor quoted, put it this way: "Increasingly, the market is running on one engine" ^[5].

Bank of America has told clients that bond yields would need to climb considerably higher before posing a genuine threat to the AI trade ^[12]. If yields stall short of that level, the borrowing carries on at its current pace. They could also rise far enough that the companies trim capex before paying up. A third path skips funding altogether: Temasek's chief investment officer called an unwinding of the AI trade the biggest risk to markets in 2027, according to Semafor ^[13]. Semafor's account does not tie that warning to borrowing costs, or say it was made on the same panel as Dalio's.

I think the rate trigger is the one the market can check, through the volume and yield of the bonds the five issuers sell ^[9]. Dalio is wrong, or rather early, if those companies keep selling bonds at higher yields without cutting capex while the indexes keep setting records ^[4]. He is right in the version where capex stays near all of operating cash flow and the yield on the bonds filling the gap keeps rising ^[11].