Billionaire Ray Dalio has warned that artificial intelligence has become a textbook bubble, and that it is not far from bursting, driven by rising interest rates and the need to convert wealth into cash.

Speaking on Wednesday at the Forbes Global CEO Conference in Singapore, Dalio said a large amount of debt financing is flowing into the AI sector. As interest rates continue to climb, the bubble will begin to burst.

The founder of Bridgewater Associates said, "We are still in the stage before the bubble bursts in the cycle, but we are very close to the critical point. I think we are not far from that step."

His remarks came as tech giants pour hundreds of billions of dollars into AI, with funding increasingly reliant on borrowing, and market gains concentrated in a handful of stocks.

Global bond yields have surged to multi-decade highs, raising the financing costs for the massive investments needed to build AI infrastructure.

Yet stock valuations keep climbing, and optimism about tech company earnings has pushed the S&P 500 and the Nasdaq 100 to record highs this week.

Dalio, who has long warned of AI bubble risks, said other factors could also trigger a collapse, including wealth taxes and other policies that turn paper gains into cash.

He added, "Everyone says they are worth a billion dollars, but the problem is, it's hard to spend that money. To cash out, you have to sell assets for cash — and that is often the stage where bubbles get pricked."