As more billionaires and market participants cry out that an AI-driven stock market bubble is forming, Howard Marks, co-chairman of Oaktree Capital, offers a counterintuitive assessment: precisely because everyone is talking about a bubble, the bubble may still be far from bursting.
According to 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 reasoning is that one of the defining characteristics of a bubble is investors’ obliviousness to risk—and when Wall Street as a whole is actively alert to bubble risks, that obliviousness is precisely absent. “If enough people are cautiously questioning whether a particular sector is in a bubble, there’s strong reason to believe that even if it is a bubble, the market will remain restrained,” said Howard Marks.
This assessment stands in stark contrast to the current market tension. Prominent hedge fund giants, from Ray Dalio to billionaire Michael Novogratz, have publicly warned that AI-driven trading is pushing stock markets to the brink of a bubble. After the Nasdaq 100 index hit a new all-time high earlier this month, it dropped 5.5% last week, with some market participants attributing the decline to a concentrated release of bubble-related anxiety.
Definition of a bubble: Howard Marks' three core criteria
Howard Marks issued a warning at the peak of the 2000 dot-com bubble and stated last year that he was in a state of "bubble watch." He acknowledged that the term "bubble" itself is "vague," but
He described the bubble as "irrational exuberance, recklessness, and obliviousness." In his view, the most characteristic feature of a bubble is when the market turns into a public frenzy—"some people are becoming absurdly wealthy, and anyone not participating feels foolish and regrets it deeply."
According to this framework, Howard Marks' current assessment is: investors do indeed exhibit fear of missing out (FOMO) on further gains, but the ongoing discussion about bubble risks indicates that the market is not in a state of obliviousness; regarding another signal—reckless investor behavior—the signs are mixed.
Valuation data: The difference is significant compared to 2000.
An important basis for supporting Howard Marks’ assessment 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 market expectations of strong corporate earnings growth, showing no clear signs of bubble-like characteristics.
The difference is especially 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 around 65x, whereas for today’s five largest tech stocks, this figure is approximately 23x.
However, another valuation metric has caused concern among some investors. The cyclically adjusted price-to-earnings ratio (CAPE, also known as Shiller P/E) is currently around 41, nearing its historical peak of 44 set in 1999. Nicholas Colas, co-founder of DataTrek Research, has called it “the most unsettling valuation chart ever circulated in markets.”
JonesTrading’s Chief Market Strategist, Michael O’Rourke, remains cautious about the decline in forward P/E ratios. He notes that major tech companies are taking on significant debt to build AI infrastructure, and corporate leverage typically compresses valuation multiples—this does not necessarily imply that valuations are reasonable.
We have taken supplier financing to a whole new level—chip manufacturers themselves need to subsidize purchases of their products, or these purchases simply wouldn’t happen.
Market Concentration and Technical Warning Signals
Beyond valuation, the high level of concentration in market structure has also drawn attention. Currently, NVIDIA, Apple, and Microsoft together account for approximately 21% of the S&P 500 index weight, whereas in October 1999, nearly 10 stocks were required to reach the same weight.
On the technical side, traders have noticed several signals reminiscent of historical bubbles, including the semiconductor sector’s price movement closely mirroring past bubble periods, a significant divergence between the best- and worst-performing tech stocks, and a sustained narrowing of market breadth.
The Nasdaq 100’s 250-percentage-point outperformance relative to the S&P 500 over the past decade has made it difficult for many investors to easily give up their exposure to tech stocks. “Even if you have some concerns about tech stocks, you can’t walk away from them. Walking away almost seems foolish because it always outperforms,” said senior investment professional Jim Paulsen.
Emotional signals: Excitement and caution coexist
On the level of investor sentiment, this year’s overall performance has fallen far short of the euphoria seen during historical bubbles.
High inflation, uncertainty surrounding the midterm elections, and the threat of war with Iran led traders to adopt defensive strategies at multiple points in 2026, resulting in several pullbacks in the Nasdaq 100 Index, including a full 10% correction.
However, signs of euphoria are not entirely absent. Broadcom CEO Hock Tan openly stated that the AI boom has attracted investors who “have no idea what they’re investing in,” whose behavior is “like being in a casino.” CFRA’s Chief Investment Strategist, Sam Stovall, shared a detail:
While speaking with a newsstand vendor in New York, he was asked to print research reports on AI-related stocks of Intel and Cisco—a scene reminiscent of 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 though the current bubble has not yet matured, market participants are closely monitoring potential catalysts that could trigger a reversal. Brian Reynolds, Chief Market Strategist at Reynolds Strategy, noted, “It’s typically problems in the credit market that end a cycle. True trouble begins when people face margin calls they cannot meet in the credit market.”
Rapidly rising interest rates have begun to pressure some market favorites. CoreWeave's stock nearly doubled between January and early May this year, but last week's market decline turned its year-to-date gains negative, causing its bond yields to surge significantly.
O'Rourke emphasized that bubbles often burst not because the technology itself fails, but because excessive optimism leads to overvalued pricing. “Investors become overconfident and pay too much. That’s the essence of bubble thinking. AI will change the world—there’s no doubt about that,” he said. “The question is how much we’re willing to pay for it.”
In the internet era, technology itself achieved great success, but when profits fell short of expectations and interest rates rose, the concentrated gains in the stock market began to reverse. The historical trajectory is being closely re-examined by today’s market participants.