AI Selloff Ignites "Bubble" Anxiety Among Professional Investors; Oaktree's Marks Cools the Fears: Not Yet at the "Oblivious" Stage

As the AI trade drives the Nasdaq 100 to repeated record highs, a growing number of professional investorsincluding Dalio and Novogratzare warning that the stock market is approaching bubble territory, and last week's 5.5% drop in the Nasdaq amplified the anxiety. But Oaktree Capital co-chairman Howard Marks believes the core conditions for a bubble are not yet met: forward price-to-earnings ratios are not extremely inflated, the fact that investors keep discussing a bubble itself shows they are not oblivious to risk, and signals of market sentiment and reckless behavior are mixed. Hedge fund titans such as Ray Dalio and Michael Novogratz, along with numerous lesser-known market observers, have become increasingly convinced that the AI trade is pushing the stock market to the edge of a bubble. The Nasdaq 100 set another record high earlier this month, and each time the index hits a fresh all-time high, the frequency of the term "dot-com bubble" in the news soars accordingly. All this anxiety may help explain last week's selloff, in which the index fell 5.5% in a single week. Yet if this really is a bubble, Wall Street investors will also find it increasingly difficult to define. Judged by the simplest price-to-earnings metric, unlike a quarter-century ago during the dot-com bubble, when P/E ratios swelled to obviously inflated levels, forward P/E ratios for benchmark indices such as the S&P 500 and Nasdaq 100 have actually declined this year, because the market expects explosive earnings growth. In fact, in the month before the market peaked in 2000, the five largest tech stocks in the S&P 500 had an average forward P/E of about 65 times; today the five largest tech stocks trade at only about 23 times. So what exactly makes so many people smell a bubble? And if they are right, what would it take to pop it? Market professionals point to a variety of bubble symptomsfrom elevated debt levels and unsustainable earnings growth expectations to historical bubble patterns based on "feel." "If you had to pick out the core element of a bubble, it might be this: a bubble becomes a public mania, an obsession, in which some people make a fortune and anyone who fails to participate feels utterly foolish and full of regret," said Howard Marks, co-chairman of Oaktree Capital Management. Marks, who accurately called the top of the dot-com bubble and warned last year that he was "watching the bubble closely," said the word "bubble" is "fuzzy" but usually requires the market to reach quantifiably levels that defy investor judgment, while risk-taking and sentiment are also disconnected from reality. "A bubble is irrational exuberance, it is reckless speculation," he said in a telephone interview. "'Oblivious' is another apt word." Analyzing the bubble indicators he currently prefers, Marks does not believe we are already in a bubble. Although investors are showing classic "fear of missing out" traitsworrying about missing further gains in tech stocksthe ongoing debate comparing this to a bubble means they are not oblivious to risk. As for another signalinvestor recklessnessthe signals are likewise mixed. By current levels, traditional P/E ratios do not look like a bubble, although measured against the past decade's earnings, the multiples are indeed alarming. Investor Recklessness On the technical front, traders have noticed similarities between current price action and stock market crashes after past bubbles burst. The indicators they cite include extreme momentum during a period of record equity and bond issuance. Other worrying data include the huge divergence between the best- and worst-performing stocks within sectors, and insufficient market breadth. In the view of Michael O'Rourke, chief market strategist at JonesTrading Institutional Services, the decline in large tech stocks' P/E ratios is justified because these companies have taken on massive debt to build AI infrastructure. He noted that when companies aggressively lever up, valuation multiples compress, which is especially worrying given the circular nature of the investment. "We have taken vendor financing to a whole new level"chipmakers themselves need to subsidize purchases of their products, "otherwise these purchases would not happen," O'Rourke said in an interview. Another indicator that has put some investors on alert is the cyclically adjusted price-to-earnings (CAPE) ratio, the ratio of stock prices to inflation-adjusted earnings over the past decade. The metric is often called the "Shiller P/E," named after Yale University economist Robert Shiller, who published "Irrational Exuberance" at the time of the market peak in March 2000. Nicholas Colas, co-founder of DataTrek Research, called the metric "the most frightening valuation chart currently circulating." The multiple currently stands at about 41 times, only slightly below the record 44 times set in 1999. Another worrying area is extreme concentration at the top of the stock market. Today, Nvidia, Apple and Microsoftthe three largest U.S. companies by market valuetogether account for about 21% of the S&P 500, whereas in October 1999 it took nearly 10 stocks to reach that proportion. Nevertheless, the Nasdaq 100's outperformance of the S&P 500 by 250 percentage points over the past decade is hard to ignore, even with all these technical warnings. "Even if you have some concerns about tech stocks, you can't give up on them. Giving up on them almost seems foolish, because they always outperform," said Jim Paulsen, an investment industry veteran who now writes a newsletter. Mania On many bubble watchers' lists, an important item is investor sentimentand this year, sentiment has been far from manic at both the institutional and retail levels. Elevated inflation, midterm election uncertainty and the Iran war have led traders to adopt defensive postures at multiple points in 2026, and the Nasdaq 100 has experienced several pullbacks and one full 10% correction. Still, there are signs that investors are euphoric about the market opportunities presented by the AI revolution, including companies changing their names to boost stock returns. Even the head of one of the biggest beneficiaries of this boom has publicly pointed to the manic atmosphere. Broadcom CEO Hock Tan said the AI frenzy has attracted investors who "have no idea what they are investing in," behaving as if they were in a casino. At least anecdotally, another frequently cited bubble warning sign is this: casual conversations with service industry workers somehow turn to investing. Joseph Kennedy famously said that in 1929, when the shoeshine boy was offering stock tips, he knew it was time to sell. Sam Stovall, chief investment strategist at CFRA, recently encountered a similar situation. He said that while talking with a newsstand operator in New York, the man asked him to print out stock reports on AI-related companies such as Intel and Cisco Systems. Oblivious Whichever warning signal the market is focused on, as the current bull market enters its fifth year, bubble talk on Wall Street is becoming increasingly common. Data compiled by the market shows that during the second-quarter earnings season, corporate executives and analysts discussed analogies to the 2008 global financial crisis and the tech bubble on 15 different investor calls, including Goldman Sachs, Analog Devices and Blackstone Group. Meanwhile, interest rates have climbed to levels that could spell trouble for former market darlings. CoreWeave's stock nearly doubled between January and early May, before last week's plunge turned its year-to-date gain negative, and its bond yields are also climbing. "Usually, it is the credit market that goes wrong before a cycle ends," said Brian Reynolds, chief market strategist at Reynolds Strategy LLC. "When people face margin calls in the credit market that they cannot meet, real trouble begins." Bubbles also burst when the belief that "technology can change the world" turns into extreme stock market mania. Investors "become overconfident and then pay too much. That is the essence of bubble thinking. The problem is not that AI won't change the world," said O'Rourke of JonesTrading. In previous casesincluding the rise of the internetthe technology was hugely successful and transformative, and the stock market rally brought a surge in equity supply through IPOs and secondary offerings. But when earnings disappointed and interest rates rose, concentrated gains began to reverse. Still, Marks does not currently see one key bubble signal in the marketinvestors' "obliviousness" to risk. In fact, everyone on Wall Street seems to be talking about a possible bubble. "If enough people are cautiously questioning whether a certain area is in a bubble, then it is entirely reasonable to conclude that: if it is indeed a bubble, it is probably still restrained," Marks said.