Billionaire investor Ray Dalio has shared his outlook on artificial intelligence (AI) investing, urging market participants to carefully evaluate where the real opportunities lie. 

According to the Bridgewater Associates founder, while AI is revolutionary and highly disruptive, investors should look beyond the obvious names and consider how the technology will impact company earnings and efficiencies across industries, he said in an X post on September 20. 

Dalio cautioned that major AI-linked companies, particularly the ‘Magnificent Seven’ technology giants, may already be trading at valuations that are difficult to justify based on the present value of their future cash flows.

To this end, he emphasized that despite AI’s transformative potential, these stocks have become expensive relative to even optimistic projections.

Instead, Dalio pointed to sectors such as biotechnology as areas where AI could deliver changes that are not yet reflected in market pricing. 

Building an AI portfolio 

In his view, investors who disagree with his view and believe AI productivity will drive sustained profits should tilt their portfolios accordingly. 

“I would suggest that you skew your portfolio accordingly. If you think everything I’m saying is wrong with pricing and you still believe it will outperform, then buy some of those stocks while still being effectively short the currency, short the currency value, and maintaining the currency hedge against that, so that your portfolio reflects both of those conditions,” Dalio said. 

Indeed, the author argued that applications of AI in improving productivity, reducing costs, and enhancing innovation across industries are undervalued compared to the well-known tech leaders.

At the same time, Dalio questioned whether AI-driven productivity improvements will translate into the profits and income necessary to offset high levels of debt in the economy. 

Based on his calculations, he considers it unlikely that such gains will materialize quickly enough, though he acknowledged the possibility of being wrong.

Disclaimer: The featured image in this article is for illustrative purposes only and may not accurately reflect the true likeness of the individuals depicted.