Bridgewater Associates has cautioned investors that markets may be underestimating structural risks underpinning the recent AI-driven surge in US equities, with growth expectations now approaching levels last seen during the dot-com bubble, according to a report by Reuters.
In a note to clients, co-chief investment officers Bob Prince, Greg Jensen and Karen Karniol-Tambour said the S&P 500’s 16% year-to-date rally has left valuations “as optimistic as they’ve been in nearly a century,” fuelled by investor enthusiasm around artificial intelligence and its potential to reshape productivity and corporate earnings.
The world’s largest hedge fund warned that while technology giants have invested billions into AI and related infrastructure, it remains unclear whether these outlays will deliver the cash flows required to justify current valuations.
Bridgewater’s leadership team — which oversees roughly $125bn in assets across macro and systematic strategies — said market participants are overlooking potential volatility drivers including persistent inflation, elevated interest rates, trade tensions, and US political uncertainty following the prolonged federal government shutdown.
The note comes as a growing number of macro and multi-strategy hedge funds have pared equity exposure or rotated into volatility trades amid concerns that the AI-led equity rally could prove unsustainable.
