AI bubble alarm rings across Wall Street! Oaktree's Marks disagrees: The market hasn't reached its most dangerous moment yet, and investors are not yet oblivious to risk.

From billionaire hedge fund titans like Ray Dalio and Michael Novogratz to countless obscure market observers, a growing number of professional investors believe the U.S. stock market is on the brink of a bubble, driven by the artificial intelligence (AI) trading frenzy. Every time the Nasdaq 100 index hits a record high, the number of mentions of the "dot-com bubble" in news reports surges. That was again the case earlier this month when the index once more set a record high. The various anxieties permeating the market may help explain last week's selloffthe Nasdaq 100 fell 5.5% cumulatively last week. The number of reports mentioning the dot-com bubble increases as tech stocks rise Yet if a bubble truly exists in the current market, it seems increasingly difficult for Wall Street investors to define it. Take the simplest price-to-earnings ratio metric. Unlike 25 years ago during the dot-com bubble, when P/E ratios soared to clearly overheated levels, the forward P/E ratios of benchmark indices such as the S&P 500 and Nasdaq 100 have actually declined this year, as the market expects explosive earnings growth. In fact, in the month before the market peaked in 2000, the average forward P/E ratio of the five largest tech stocks in the S&P 500 was about 65 times; today, the average forward P/E ratio of the five largest tech stocks is about 23 times. So what characteristics of the current market lead so many people to believe a bubble is forming? And if they are right, what would it take to prick the bubble? Market professionals point to multiple signs of market overheating, including alarmingly high debt levels, unsustainable earnings growth expectations, and market sentiment and behavioral patterns similar to past bubble periods. Howard Marks, co-chairman of Oaktree Capital Management, said: "If you had to pick one quintessential feature of a bubble, it might be thisa bubble turns into a public mania, a mass pursuit, in which some people make a fortune and everyone who didn't participate feels foolish and regrets missing out." Marks, who accurately called the top of the market during the dot-com bubble and warned last year that he had entered "bubble watch" mode, said the word "bubble" has a "fuzzy" definition, but generally a bubble means market prices have risen clearly beyond the level of investors' rational judgment, while risk appetite and market sentiment are disconnected from reality. "A bubble means irrational exuberance, and it also means heedless risk-taking. 'Oblivious' is also a very apt word," he said in a telephone interview. Analyzing the bubble indicators he is currently most focused on, Marks does not believe the market has reached that stage. Although investors are showing the typical fear of missing out on further gains in tech stocks, the market's constant comparisons of the current rally to past bubbles mean investors are not unaware of the risk. As for another signalheedless investor behaviorthere are currently conflicting signs. P/E ratios calculated in the traditional way do not show typical bubble characteristics at current levels, although valuation multiples based on the past decade's earnings look worrisome. Investor heedlessness From a technical perspective, traders point to similarities between the current market and the stock market crashes that followed past bubble bursts. They cite indicators such as extreme market momentum alongside record levels of equity and bond issuance. Other worrying data include the huge gap between the best- and worst-performing stocks within the same sector, and the lack of broad stock participation in the market rally. Michael O'Rourke, chief market strategist at JonesTrading Institutional Services LLC, believes the decline in large-cap tech P/E ratios is justified because these companies are taking on enormous debt to build AI infrastructure. He notes that when companies significantly increase leverage, their valuation multiples typically contract. This is especially concerning given the circular financing nature of the related investments. "Vendor financing has evolved to an entirely new level," O'Rourke said in an interview, to the point where chipmakers themselves need to subsidize customers' purchases of their own products, "otherwise, these purchases simply wouldn't happen." One indicator that worries some investors is the cyclically adjusted price-to-earnings ratio (CAPE), a valuation measure that gauges stock prices based on inflation-adjusted earnings over the past 10 years. It is often called the "Shiller P/E," named after Yale University economist Robert Shiller. In March 2000, at the market peak, Shiller published "Irrational Exuberance." Nicholas Colas, co-founder of DataTrek Research, called this indicator "the most widely circulated and most chilling valuation chart out there right now." It currently shows a market valuation multiple of about 41 times, only slightly below the all-time record of 44 times set in 1999. CAPE indicator breaks into high territory Another worrying area is the extreme concentration at the top of the stock market. Today, the three largest U.S. companies by market capitalizationNVIDIA Corporation (NBDA.US), Apple Inc. (AAPL.US) and Microsoft Corporation (MSFT.US)together account for about 21% of the S&P 500's weight. In October 1999, it took nearly 10 stocks to reach that level of weight. Despite all these technical warning signs, the Nasdaq 100 has outperformed the S&P 500 by 250 percentage points cumulatively over the past 10 years, a performance that remains hard to ignore. Jim Paulsen, a veteran investment industry figure who now writes an investment newsletter, said: "Even if you have some concerns about tech stocks, you can't give them up. Giving up tech stocks seems almost like a foolish choice, because they always perform better." Market mania Many who focus on bubble risk include investor sentiment as an important item on their checklist, but this year sentiment among both institutional and retail investors is far from manic. High inflation, uncertainty from midterm elections and the Middle East war have all prompted traders to adopt defensive strategies at various points in 2026. Meanwhile, the Nasdaq 100 has pulled back multiple times and undergone a full 10% correction. Still, there are signs that investors are excited or even euphoric about the market opportunities presented by the AI revolution, including some companies changing their names to boost their stock prices. Even the leader of one of the biggest beneficiaries of the AI boom has criticized the feverish atmosphere. Broadcom Inc. (AVGO.US) CEO Hock Tan said the AI boom has attracted some investors who "have no idea what they're investing in" and behave as if they are placing bets in a casino. At least anecdotally, another frequently cited bubble warning sign is this: investors casually chatting with service industry workers somehow end up talking about investing. According to a widely circulated story, Joseph Kennedy said he knew it was time to sell in 1929 when the shoeshine boy started giving him stock tips. Sam Stovall, chief investment strategist at CFRA, recently had a similar experience. He said that while talking with a man running a newsstand in New York, the man asked him to print out stock research reports on AI-related Intel Corporation (INTC.US) and Cisco Systems, Inc. (CSCO.US). Oblivious to risk Whichever warning signal investors focus on, as the current bull market enters its fifth year, Wall Street discussion about a possible market bubble is becoming increasingly common. Data compiled by industry research shows that during the second-quarter earnings season, corporate executives and analysts discussed similarities between the current market and the 2008 global financial crisis and the tech bubble on 15 different investor conference calls, with participating companies including Goldman Sachs Group, Inc. (GS.US), Analog Devices, Inc. (ADI.US) and Blackstone Inc. (BX.US). Meanwhile, interest rates have risen sharply, reaching levels sufficient to put previously favored market darlings in trouble. CoreWeave (CRWV.US) shares nearly doubled between January and early May, but after last week's plunge, its year-to-date stock performance has turned negative, while the company's bond yields continue to climb. Brian Reynolds, chief market strategist at Reynolds Strategy LLC, said: "Typically, what ultimately brings a market cycle to an end is trouble in the credit markets. When people get margin calls in the credit markets and can't meet them, that's when real trouble begins." Bubbles also burst when people believe a technology can change the world and this creates extreme euphoria in the stock market. O'Rourke said investors "become overconfident and then pay too high a price. That's what bubble thinking really means. The problem is not that AI can't change the world." Looking back at past cases such as the rise of the internet, the relevant technologies ultimately achieved great success and brought profound change. At the same time, the stock market rally also drove a sharp increase in equity supply through initial public offerings (IPOs) and secondary stock offerings. However, when corporate earnings failed to meet expectations and interest rates began to rise, the gains concentrated in a handful of stocks began to reverse. Still, Marks does not currently see one classic bubble signal in the market: investors being "oblivious" to risk. In fact, everyone on Wall Street seems to be discussing whether a market bubble might exist. Marks said: "If enough people begin to cautiously wonder whether there is a bubble in a certain area, then there is good reason to believe that even if a bubble does exist there, its extent may be somewhat limited."