Leading hedge fund manager Howard Marks isn’t too concerned about market valuations, particularly among tech and AI stocks just yet. While he acknowledged the surge in enthusiasm surrounding these stocks, he pushed back on the idea that markets are in irrational territory.
Valuations High, ‘But Not Crazy’
The Oaktree Capital co-founder, when pressed on whether current market valuations mirror past bubbles, said that they were “high, but not crazy,” during his appearance on CNBC’s Squawk on the Street on Monday.
The veteran investor, known for his widely read memos, said labeling this period as a bubble would require more evidence of speculative mania. “To me, the main ingredient in bubbles is psychological excess,” Marks said. “There's no such thing as a price too high, and I don't detect that level of mania at this time.”
He acknowledged that AI is indeed transformational and that some investors fear missing out. “AI has been successful as an investment, and people are piling in and there’s some fear about being left out,” he said.
Mark, however, warned against complacency. He said, “This may prove to have been a time when you should have become defensive and people will look back and say, well, why didn't you? But I don't think you can say that dependably right now.”
While the S&P 500 is trading at a forward price-to-earnings ratio of around 24, compared to its historic average of 16, he noted the case for optimism, saying that “The S&P now is better. They're better companies. They have market dominance, fabulous products.”
Tech Valuations 270% Higher Than Dot-Com Peak
Kevin C. Smith, the Chief Investment Officer at Crescat Capital, sounded the alarm this week, noting that the enterprise value of the top 10 largest mega-cap U.S. stocks is now at 76.8% of the country’s GDP, a figure that he said was 270% higher than the 28.4% peak reached by tech and telecom stocks at the peak of the dot-com bubble.
According to Smith, investing in tech-dominated index funds at these levels “assumes that gravity no longer applies.”
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