Is It a Bubble?

Howard Marks argued in his December 2025 memo that AI is exhibiting the hallmarks of a historical bubble — speculative behavior, circular deals, and FOMO-driven capital allocation — while acknowledging that transformational technologies have always generated such excesses. He drew parallels to the railroad, radio, and internet bubbles, noting that "inflection bubbles" based on real technological progress still destroy investor wealth even as they accelerate adoption. His core tension: AI's potential may be genuine, but the enthusiasm surrounding it may already be irrational. Marks flagged the growing use of debt as a distinct risk this cycle. He cited JPMorgan estimates of $5 trillion in AI infrastructure costs, noted that the largest spenders held only ~$350 billion in cash collectively as of Q3 2024, and highlighted Oracle, Meta, and Alphabet issuing 30-year bonds to fund AI investments. He warned that financing speculative assets with debt — rather than equity — inverts the historical logic of capital markets and magnifies losses if the buildout overshoots demand. On valuation, Marks noted that Nvidia briefly reached a $5 trillion market cap, up roughly 8,000x from its 1999 IPO value of $626 million. He observed that current P/E ratios for leading AI names are lower than those seen during the 1998–2000 internet bubble, which supporters cite as evidence this cycle is different. His bottom line: a moderate, selective posture is warranted — neither fully in nor fully out — because the technology's impact is real but its timing and winners remain unknowable.