Billionaire investor Ray Dalio has a message for the market: Yes, we're in a bubble. No, you probably shouldn't sell just yet.

Speaking on CNBC's Squawk Box Thursday, the Bridgewater founder laid out his diagnosis of current market conditions. His proprietary "bubble gauge" is signaling that we're about 80% of the way toward the kind of historic bubbles that ended very badly — think 1929 or the dot-com crash of 1999.

The warning signs are familiar to anyone paying attention: extreme leverage, a surge of inexperienced retail investors piling in, and a level of optimism that borders on reckless. Dalio pointed specifically to the massive concentration of capital in a handful of tech giants, with the AI frenzy around NVIDIA Corp. (NVDA) serving as the poster child for this cycle.

But here's where it gets interesting. Identifying a bubble and timing its collapse are entirely different problems, according to Dalio. And right now, the ingredients for a pop simply aren't there.

"A lot can go up before the bubble bursts," he explained. Bubbles don't just deflate on their own — they need a catalyst, or what Dalio calls a "pricking."

"The picture is pretty clear, in that we are in that territory of a bubble," Dalio said. "But we don't have the pricking of the bubble yet."

Historically, that catalyst has come from the Federal Reserve aggressively tightening monetary policy to fight inflation. But with the Fed not currently signaling the kind of rate hikes that would pop the asset balloon, Dalio sees room for the market to keep inflating. Selling now could mean missing the final — and often most euphoric — leg of the rally.

That's the tricky part about bubbles. The last stretch can be the most profitable, even if you know disaster is lurking somewhere down the road. It's like staying at a party that's clearly gone on too long — leaving early means missing the craziest moments, but staying too late means you're there when the cops show up.

Dalio's advice amounts to tactical caution. The party isn't over, but the music is getting dangerously loud.

"Don't sell just because there's a bubble," Dalio said. "But if you look at the correlations with the next 10 years' returns, when you are in that territory, you get very low returns."

Translation: Enjoy the gains while they last, but don't expect the next decade to be kind. For now, investors are dancing on the edge of a cliff — and Dalio suggests they keep dancing, but keep one eye firmly on the exit.