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

As more billionaires and market participants proclaim that the AI-driven stock market is forming a bubble, Howard Marks, co-chairman of Oaktree Capital, offers a counterintuitive judgment: precisely because everyone is talking about a bubble, it may still be far from the moment of bursting.

According to a report by Bloomberg on October 18, Howard Marks stated in an interview that he does not currently believe the market has reached a true bubble state. His core logic is that one of the essential characteristics of a bubble is investors' "obliviousness" to risk, and when Wall Street is on high alert for bubble risks, this "obliviousness" is notably absent. "If enough people are cautiously questioning whether there is a bubble in a certain area, then there is every reason to believe that even if it is a bubble, the market will behave very restrained," Marks said.

This judgment sharply contrasts with the current tense sentiment in the market. From Ray Dalio to billionaire Michael Novogratz, several hedge fund giants have publicly warned that AI trading is pushing the stock market to the brink of a bubble. After the Nasdaq 100 index hit a new historical high earlier this month, it subsequently fell by 5.5% last week, with some market participants attributing this to a concentrated release of bubble anxiety.

Definition of a Bubble: Howard Marks' Three Core Criteria

Howard Marks issued a warning at the peak of the internet bubble in 2000 and stated last year that he was in a "bubble watch" state. He admits that the term "bubble" itself is "vague," but he describes a bubble as "irrational exuberance, recklessness, and obliviousness." In his view, the most typical characteristic of a bubble is that the market evolves into a public frenzy—"some people are becoming absurdly wealthy, while anyone not participating feels foolish and regrets it."

In light of this framework, Marks' current assessment is that investors do exhibit a "fear of missing out" (FOMO) regarding further gains, but the ongoing discussion of bubble risks itself indicates that the market has not fallen into a state of "obliviousness"; similarly, regarding another signal—investor recklessness—the signals are also mixed.

Valuation Data: Significant Differences Compared to 2000

An important basis supporting Howard Marks' judgment is the current valuation levels. Looking at the forward price-to-earnings (P/E) ratios of the S&P 500 and Nasdaq 100, this indicator has actually declined this year due to strong expectations for corporate earnings growth, showing no obvious signs of bubble characteristics.

The difference is particularly striking compared to one month before the peak of the 2000 internet bubble: at that time, the average forward P/E ratio of the five largest tech stocks in the S&P 500 was about 65 times, while the current number for the largest five tech stocks is about 23 times.

However, another valuation metric has left some investors uneasy. The cyclically adjusted price-to-earnings ratio (CAPE, also known as Shiller P/E) is currently about 41 times, close to the historical record of 44 times set in 1999. Nicholas Colas, co-founder of DataTrek Research, referred to it as "the most disturbing valuation chart circulating in the market."

Michael O'Rourke, chief market strategist at JonesTrading, expressed reservations about the decline in forward P/E ratios. He pointed out that large tech companies are heavily borrowing to build AI infrastructure, and corporate leverage typically compresses valuation multiples, which does not necessarily mean valuations are reasonable.

"We have pushed vendor financing to new heights—chip manufacturers themselves need to subsidize the purchase of their products, otherwise these purchases simply won't happen."

Market Concentration and Technical Warning Signals

In addition to valuations, the high concentration at the structural level of the market has also raised concerns. Currently, Nvidia, Apple, and Microsoft together account for about 21% of the S&P 500 index, whereas in October 1999, nearly ten stocks were needed to achieve the same weight.

On the technical side, traders have noted several signals similar to those during historical bubble periods, including the performance trends of the semiconductor sector closely matching those of previous bubble periods, the significant divergence between the best and worst-performing tech stocks, and the continued narrowing of market breadth.

The 250 basis points of excess returns of the Nasdaq 100 relative to the S&P 500 over the past decade have also made it difficult for many investors to easily abandon their tech stock exposure. "Even if you have some concerns about tech stocks, you can't give them up. It seems almost foolish to abandon them because they always outperform," said seasoned investor Jim Paulsen.

Sentiment Signals: Euphoria and Caution Coexist

In terms of investor sentiment, this year's overall performance has not reached the euphoric levels seen during historical bubble periods.

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

However, signs of euphoria are not entirely absent. Hock Tan, CEO of Broadcom, publicly stated that the AI boom has attracted a group of investors who are "completely unaware of what they are investing in," and their behavior is "like being in a casino." Sam Stovall, chief investment strategist at CFRA, shared a detail:

When he spoke with a newsstand owner in New York, the owner asked him to print research reports on AI-related stocks for Intel and Cisco—this scene evokes the famous anecdote from before the 1929 stock market crash when Joseph Kennedy heard stock tips from a shoeshine boy.

How Bubbles Burst: The Credit Market is Key

Even if the current bubble is not yet mature, market participants are closely monitoring potential catalysts that could trigger a reversal. Brian Reynolds, chief market strategist at Reynolds Strategy, noted, "Typically, problems in the credit market end a cycle. Real trouble begins when people encounter unmet margin calls in the credit market."

The rapid rise in interest rates has begun to exert pressure on some market favorites. CoreWeave's stock price nearly doubled from January to early May this year, but last week's market decline turned its year-to-date gains negative, and its bond yields also surged.

O'Rourke emphasized that the bursting of a bubble often does not occur due to a failure of the technology itself, but rather because excessive optimism leads to overextended valuations. "Investors become overly confident and then pay too high a price. That is the essence of bubble thinking. AI will change the world, there is no doubt about that," he said. "The question is how much to pay for it."

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

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