Howard Marks: If everyone is talking about a bubble, the bubble may not have burst yet

While more and more billionaires and market participants are proclaiming an AI-driven stock market bubble, Oaktree Capital Co-Chairman Howard Marks offers a counterintuitive assessment: Precisely because everyone is talking about a bubble, the moment of its burst may still be far off.

According to a Bloomberg report on October 18, Howard Marks stated in an interview that he does not believe the market has reached a true bubble state. His core logic is this: one defining feature of a bubble is investors’ “obliviousness” to risk, and when all of Wall Street is cautious about bubble risks, that very “obliviousness” is absent. “If enough people are cautiously questioning whether a certain area is a bubble, there is every reason to believe that even if it is a bubble, the market will behave with restraint," said Howard Marks.

This stands in stark contrast to the tense sentiment currently 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. Earlier this month, after the Nasdaq 100 hit another all-time high, it quickly fell by 5.5% last week, with some market watchers attributing this to a concentrated release of bubble anxiety.

Defining the Bubble: Howard Marks' Three Core Criteria

Howard Marks issued a warning at the top of the dot-com bubble in 2000, and said last year that he was in a “bubble-watching” mode. 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 when the market morphs into public mania— “some people are getting ridiculously rich, while anyone not participating feels stupid and deeply regrets it.”

According to this framework, Howard Marks’ current assessment is: investors indeed show a ‘fear of missing out’ (FOMO) regarding further gains, but the ongoing discussion about bubble risks indicates the market is not in a state of ‘obliviousness’; regarding another signal—the recklessness of investors—this too presents mixed evidence.

Valuation Data: Significant Gap When Compared to 2000

A key basis supporting Howard Marks’ judgment is the current level of valuations. Judging by the forward P/E ratios of the S&P 500 and Nasdaq 100, thanks to strong earnings growth expectations, this metric has actually declined this year, showing no obvious bubble characteristics.

The contrast is notable compared with the month before the 2000 dot-com bubble peak: at that time, the five largest technology stocks in the S&P 500 had an average forward P/E ratio of around 65, while today's five largest tech stocks have an average around 23.

However, another valuation indicator is making some investors uneasy. The cyclically adjusted price-to-earnings ratio (CAPE, also known as Shiller P/E) is currently about 41, close to the record high of 44 set in 1999. Nicholas Colas, co-founder of DataTrek Research, calls it “the most unsettling valuation chart circulating in the market today.”

Michael O'Rourke, Chief Market Strategist at JonesTrading Institutional Services, is cautious about the decline in forward P/E ratios. He points out that large tech companies are heavily borrowing to build AI infrastructure, and increased corporate leverage typically suppresses valuation multiples, which does not necessarily imply reasonable valuations.

“We've taken vendor financing to a whole new level—chip makers themselves have to subsidize purchases of their products, otherwise these acquisitions simply wouldn’t happen.”

Market Concentration and Technical Warning Signals

Beyond valuations, the high concentration within market structure is also raising concerns. Currently, Nvidia, Apple, and Microsoft together account for about 21% of the S&P 500 index weight, while in October 1999, it took nearly 10 stocks to reach the same weighting.

From a technical perspective, traders have already noticed several similarities with past bubble periods, including the surge in semiconductor stocks mirroring previous bubble rallies, massive divergence between the best and worst performing tech stocks, and ongoing market breadth contraction.

The Nasdaq 100’s excess return of 250 percentage points over the S&P 500 in the past decade also makes it hard for many investors to give up exposure to tech stocks. “Even if you’re a bit nervous about tech, you can’t let go of it. Dropping it almost seems foolish because it always outperforms,” commented veteran investor Jim Paulsen.

Sentiment Signals: Euphoria and Caution Coexist

In terms of investor sentiment, the overall performance this year is still far from the level of euphoria seen in past bubble periods.

High inflation, uncertainty over the midterm elections, and the Iran war have driven traders to defensive strategies at several points before 2026, with the Nasdaq 100 experiencing multiple pullbacks, including a full 10% correction.

However, signs of euphoria are not entirely absent. Broadcom CEO Hock Tan openly stated that the AI craze has attracted investors who “have no idea what they are investing in,” describing their behavior as “akin to gambling.” CFRA Chief Investment Strategist Sam Stovall shared an anecdote:

During a conversation with a New York newsstand vendor, he was asked to print AI-related stock research on Intel and Cisco—reminiscent of the famous Joseph Kennedy story before the 1929 crash, where he heard stock tips from a shoeshine boy.

How a Bubble Bursts: The Credit Market Is Key

Even if the current bubble is not mature, market participants are closely monitoring potential reversal catalysts. Brian Reynolds, Chief Market Strategist at Reynolds Strategy, noted, “Usually, it’s the credit market running into problems that ends a cycle. When people face margin calls they can't meet in the credit market, that's when real trouble begins.”

Rapid rises in interest rates are already pressuring some market darlings. CoreWeave’s stock nearly doubled from January to early May this year, but last week’s market downturn sent its year-to-date return negative, alongside a significant rise in its bond yields.

O'Rourke emphasizes that bubbles rarely burst because the technology itself fails, but rather because over-optimism leads to overblown valuations. “Investors become overconfident, then pay too much. That’s the essence of bubble thinking. AI will change the world—no doubt about that.” He added, “The real question is: How much are you willing to pay for it?”

In the internet era, the technology itself achieved great success, but when earnings disappointed and interest rates rose, the concentrated stock rally began to reverse. The path of history is being carefully scrutinized by today’s market participants.