As a growing number of billionaires and market participants loudly warn that an AI-driven stock market is forming a bubble, Oaktree Capital co-chairman Howard Marks offers a counterintuitive view: precisely because everyone is talking about a bubble, the moment of its bursting may still be far off.
In an interview, Howard Marks said he does not currently believe the market has reached a genuine bubble state. His core logic is that one of the essential features of a bubble is investors' "obliviousness" to risk, and when Wall Street is on alert for bubble risk from top to bottom, that very obliviousness is absent. "If enough people are cautiously asking whether a certain area is in a bubble, then there is every reason to believe that even if it is a bubble, the market will behave in a restrained manner," Howard Marks said.
This judgment stands in sharp contrast to the current nervous mood in the market. From Ray Dalio to billionaire Michael Novogratz, several hedge fund titans have publicly warned that AI trading is pushing the stock market to the edge of a bubble. After the Nasdaq 100 index hit a record high earlier this month, it fell 5.5% the following week, with some market participants attributing the drop to a concentrated release of bubble anxiety.
Defining a Bubble: Howard Marks' Three Core Criteria
Howard Marks once issued a warning at the peak of the internet bubble in 2000, and last year said he was in a "bubble watch" state. He acknowledges that the word "bubble" itself is "vague," but he describes a bubble as "irrational exuberance, it is recklessness, it is obliviousness." In his view, the most typical feature of a bubble is when the market becomes a public frenzy — "some people are becoming absurdly rich, and anyone who has not participated feels foolish and regrets it deeply."
Against this framework, Howard Marks' current assessment is: investors do show a "fear of missing out" (FOMO) on further gains, but the ongoing discussion of bubble risk itself shows the market has not fallen into a state of obliviousness; and on another signal — investors' reckless behavior — the signals are similarly mixed.
Valuation Data: A Striking Gap Compared With 2000
An important basis supporting Howard Marks' judgment is the current valuation level. Looking at the forward price-to-earnings (forward P/E) ratios of the S&P 500 and Nasdaq 100, this metric has actually declined this year due to market expectations of strong corporate earnings growth, and does not show obvious bubble-like characteristics.
Compared with the month before the peak of the internet bubble in 2000, the difference is particularly striking: at that time, the average forward P/E of the five largest technology stocks in the S&P 500 was about 65 times, while the figure for the current five largest technology stocks is about 23 times.
However, another valuation metric makes some investors uneasy. The cyclically adjusted price-to-earnings ratio (CAPE, also known as the Shiller P/E) currently stands at about 41 times, close to the historical record of 44 times set in 1999. Nicholas Colas, co-founder of DataTrek Research, calls it "the most disturbing valuation chart circulating in the market today."
Michael O'Rourke, chief market strategist at JonesTrading Institutional Services, is more reserved about the decline in forward P/E ratios. He points out that large technology companies are borrowing heavily 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 an entirely new level — chipmakers themselves need to subsidize the purchase of their products, otherwise these purchases would not happen at all."
Market Concentration and Technical Warning Signals
Beyond valuations, the high concentration at the market structure level has also drawn attention. Currently, NVIDIA (NASDAQ: NVDA), Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) 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 noticed multiple signals similar to historical bubble periods, including a trajectory in the semiconductor sector that closely matches previous bubble periods, a huge divergence between the best- and worst-performing technology stocks, and a持续 narrowing of market breadth.
The Nasdaq 100's excess return of 250 percentage points relative to the S&P 500 over the past decade also makes it hard for many investors to easily give up their technology exposure. "Even if you are somewhat worried about technology stocks, you cannot 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 level, this year's overall performance is far from the euphoria of historical bubble periods.
High inflation, uncertainty over the midterm elections and the Iran war have led traders to take defensive positions at multiple points in 2026, and the Nasdaq 100 has experienced several pullbacks, including a full 10% correction.
However, signs of euphoria are not entirely absent. Broadcom (NASDAQ: AVGO) CEO Hock Tan publicly said the AI boom has attracted a group of investors who "have no idea what they are investing in," behaving "as if in a casino." Sam Stovall, chief investment strategist at CFRA, shared a detail:
When he spoke with a newspaper stand owner in New York, the man asked him to print AI-related stock research reports on Intel (NASDAQ: INTC) and Cisco (NASDAQ: CSCO) — a scene reminiscent of the famous anecdote in which Joseph Kennedy heard stock tips from a shoeshine boy before the 1929 stock market crash.
How a Bubble Bursts: 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, points out that "it is usually problems in the credit market that end a cycle. When people face margin calls in the credit market that they cannot meet, that is when real trouble begins."
Rapidly rising interest rates have already begun to pressure some market favorites. CoreWeave (NASDAQ: CRWV) shares nearly doubled between January and early May this year, but last week's market decline turned its year-to-date gain negative, and its bond yields also climbed sharply.
O'Rourke emphasizes 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 is no question about that," he said. "The question is how much you pay for it."
In the internet era, the technology itself was a 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.
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