Howard Marks: If Everyone Is Talking About a Bubble, the Bubble May Not Have Burst Yet

Author: Dong Jing

Source: Wallstreetcn

As a growing number of billionaires and market participants cry that an AI-driven stock market bubble is forming, Oaktree Capital co-chairman Howard Marks offers a counterintuitive judgment: precisely because everyone is talking about a bubble, the moment of its bursting may still be far off.

According to a Bloomberg report on October 18, Howard Marks said in an interview that he does not currently believe the market has reached a true bubble state. His core logic: one of the essential characteristics of a bubble is investors' "obliviousness" to risk, and when all of Wall Street is on guard against bubble risk, that very obliviousness is precisely absent. "If enough people are cautiously asking whether there is a bubble in a certain area, then there is good reason to believe that even if it is a bubble, the market will behave in a restrained manner," Marks said.

This judgment stands in sharp contrast to the current nervous sentiment in the market. From Ray Dalio to billionaire Michael Novogratz, multiple hedge fund titans have publicly warned that AI trading is pushing the stock market to the brink of a bubble. After the Nasdaq 100 index hit another all-time high earlier this month, it fell 5.5% the following week, which some market participants attributed to a concentrated release of bubble anxiety.

Defining a Bubble: Howard Marks's Three Core Criteria

Howard Marks once issued a warning at the peak of the dot-com bubble in 2000, and last year said he was in a "bubble-watching" state. He acknowledges that the word "bubble" itself is "vague," but

he describes a bubble as "irrational exuberance, it's recklessness, it's obliviousness." In his view, the most typical bubble characteristic is when the market devolves into a public frenzy—"some people are getting absurdly rich, and anyone who is not participating feels foolish and regrets it deeply."

Against this framework, Howard Marks's current assessment is: investors do exhibit a "fear of missing out" (FOMO) on further gains, but the ongoing discussion of bubble risk itself indicates that the market has not fallen into a state of "obliviousness"; and on another signal—reckless investor behavior—the signals are likewise mixed.

Valuation Data: A Significant Gap Compared with 2000

An important basis supporting Howard Marks's judgment is the current valuation level. Looking at the forward P/E ratios of the S&P 500 and Nasdaq 100, this metric has actually declined this year due to expectations of strong corporate earnings growth, and does not exhibit obvious bubble-like characteristics.

The difference is particularly striking compared with the month before the peak of the dot-com bubble in 2000: at that time, the average forward P/E of the five largest tech stocks in the S&P 500 was about 65x, whereas the figure for the current five largest tech stocks is about 23x.

However, another valuation metric makes some investors uneasy. The cyclically adjusted P/E ratio (CAPE, also known as the Shiller P/E) currently stands at about 41x, close to the historical record of 44x set in 1999. Nicholas Colas, co-founder of DataTrek Research, called it "the most disturbing valuation chart circulating in the market today."

Michael O'Rourke, chief market strategist at JonesTrading Institutional Services, is more cautious about the decline in forward P/E ratios. He points out that large tech companies are aggressively taking on debt to build AI infrastructure, and corporate leverage typically compresses valuation multiples, which does not necessarily mean valuations are reasonable.

"We have taken vendor financing to an entirely new level—chipmakers themselves need to subsidize the purchase of their products, otherwise these procurements simply would not happen."

Market Concentration and Technical Warning Signals

Beyond valuations, the high concentration at the market structure level has also drawn attention. Currently, Nvidia, Apple, and Microsoft together account for about 21% of the S&P 500's weight, whereas in October 1999, nearly 10 stocks were needed to reach the same weight.

On the technical front, traders have noted multiple signals similar to historical bubble periods, including the semiconductor sector's gains closely matching those of previous bubble periods, the massive divergence between the best- and worst-performing tech stocks, and the continued narrowing of market breadth.

The Nasdaq 100's 250-percentage-point excess return over the S&P 500 over the past 10 years also makes it hard for many investors to easily give up their tech exposure. "Even if you have some concerns about tech stocks, you can't abandon them. Abandoning them almost seems foolish because they always outperform," said veteran investor Jim Paulsen.

Sentiment Signals: Euphoria and Caution Coexist

On the investor sentiment front, this year's overall performance is far from the level of euphoria seen during historical bubble periods.

High inflation, uncertainty surrounding the midterm elections, and the Iran war have led traders to adopt defensive positioning at multiple points in 2026, and the Nasdaq 100 has experienced several pullbacks, including a full 10% correction.

Yet signs of euphoria are not entirely absent. Broadcom CEO Hock Tan publicly stated that the AI boom has attracted a group of investors who "have no idea what they're investing in," behaving "as if in a casino." Sam Stovall, chief investment strategist at CFRA, shared a detail:

While talking with a newsstand owner in New York, the man asked him to print out AI-related stock research reports on Intel and Cisco—a scene reminiscent of the famous anecdote about Joseph Kennedy hearing stock tips from a shoeshine boy before the 1929 stock market crash.

How Bubbles Burst: The Credit Market Is Key

Even if the current bubble is not yet mature, market participants are closely watching catalysts that could trigger a reversal. Brian Reynolds, chief market strategist at Reynolds Strategy, pointed out that "it is usually problems in the credit market that end a cycle. When people encounter margin calls in the credit market that they cannot meet, that is when real trouble begins."

Rapidly rising interest rates have begun to pressure some market darlings. CoreWeave's stock nearly doubled between January and early May this year, but last week's market decline pushed its year-to-date gains into negative territory, and its bond yields climbed sharply as well.

O'Rourke, meanwhile, emphasized that bubbles often burst not because the technology itself fails, but because excessive optimism leads to overstretched valuations. "Investors become overconfident and then pay too high a price. That is the essence of bubble thinking. AI will change the world—there's no problem with that," he said. "The question is how much you pay for it."

In the internet era, the technology itself achieved tremendous success, but when earnings fell short of expectations and interest rates rose, concentrated stock market gains began to reverse. The trajectory of history is being repeatedly examined by today's market participants.