Prices are not high enough? Trees don't grow to the sky

No historical indicators to accurately value new tech stocks are brewing a bubble on Wall Street, says the investment guru

Howard Marks, co-founder and co-chairman of Oaktree Capital Management
Howard Marks, co-founder and co-chairman of Oaktree Capital Management
Yeonhee Kim 1
2025-01-09 18:01:47 yhkim@hankyung.com
Memo from Howard Marks

The S&P 500 index just experienced its best two-year streak since the 1997-98 Asian financial crisis, with the hype surrounding artificial intelligence sparking exuberance for technology stocks.

But there are cautionary signs that the rally is overdone and optimism is overrated, warns Howard Marks, co-founder and co-chairman of Oaktree Capital Management.

“The bubbles I’ve lived through have all involved innovations … and many of those were either overestimated or not fully understood,” he said in a memo headlined "On Bubble Watch." It was posted on Oaktree Capital’s website on Tuesday.

With 25 years of experience in financial investment, Marks witnessed the burst of the dot.com bubble between the late 1990s and 2000 and then the housing bubble in the aftermath of the subprime mortgage crisis in the late 2000s.

“Whenever I hear …. there’s a price that’s too high, but we’re not there yet, I consider it a sure sign that a bubble is brewing," said Mark, adding: "Trees don’t grow to the sky."

The investment guru takes Nvidia Corp., the top AI chip designer, as an example.

The leader of the top seven technology stocks – the so-called “Magnificent Seven” – is now trading at around 30 times future earnings.

“What does a multiple (of Nvidia) in the 30s imply? … Investors are assuming Nvidia will demonstrate persistence,” Marks warned.

The S&P 500 was up 26% in 2023 and 25% in 2024.

The bull run implies the presumption that its top seven companies – Apple, Microsoft, Alphabet, Amazon.com, Meta and Tesla – will continue to be successful, he noted.

“When something is on the pedestal of popularity, the risk of a decline is high.”

Marks also expressed caution against the surging price of Bitcoin.

“Regardless of its merit, the fact its price rose 465% in the last two years doesn’t suggest an overabundance of caution.”

Write to Yeonhee Kim at yhkim@hankyung.com
 


Jennifer Nicholson-Breen edited this article.
#OaktreeCapitalManagement #HowardMarks #stockbubble #S&P #Nvidia #MagnificentSeven #Bitcoin

Fed rate likely to be 2-4% over next decade: Oaktree's Howard Marks

Fed rate likely to be 2-4% over next decade: Oaktree's Howard Marks

Howard Marks (right) speaks at an investors' meeting, moderated by Teachers' Pension former CIO Lee Kyu-hong (left), in Seoul on Nov. 10  Investors are experiencing the third “sea change,” facing the Federal Reserve’s rate hikes and its impact on economies and businesses,

We’re in a ‘range of fairness’ in terms of normal balances: Howard Marks

We’re in a ‘range of fairness’ in terms of normal balances: Howard Marks

Oaktree Capital Management Co-founder and Co-Chairman Howard Marks When Oaktree Capital Management Co-Founder and Co-Chairman Howard Marks appears on TV, he is often asked whether to embrace a risk-on or risk-off strategy when trading assets. But he believes such questions are highly deficient

Howard Marks says should stay in the market now

Howard Marks says should stay in the market now

Howard Marks during an interview with The Korea Economic Daily at Oacktree's New York office on Dec. 28. NEW YORK -- US stock markets remain high but their prices seem reasonable at the current level of interest rates near historic lows, said Oaktree Capital Management’s co-founder and Co

Current asset prices not irrational: Howard Marks

Current asset prices not irrational: Howard Marks

Howard Marks, co-founder and co-chairman of Oaktree Capital Management Many asset prices have skyrocketed to their highest-ever levels as interest rates remain historically low, but that does not mean their current valuations make no sense, said Oaktree Capital Management’s co-founder and
(* comment hide *}