Renowned investor Howard Marks, widely regarded for his deep understanding of market psychology and cycles, has witnessed enough episodes of financial mania throughout his storied career to recognize the early tremors of a speculative bubble. In a recent conversation on the “We Study Billionaires” podcast, which aired last Saturday, the billionaire cofounder of Oaktree Capital Management expressed growing concern about the frenzied enthusiasm currently enveloping the investment landscape. He noted, with a tone of both caution and incredulity, that a vast number of investors are now rushing headlong into highly speculative startups, driven by the tantalizing hope of discovering the next company that could someday achieve a trillion-dollar valuation.
Illustrating this dichotomy, Marks posed a thought-provoking question: would an investor rather place their money in a novel, unproven entrepreneurial venture—one that has neither current revenues nor profits, yet could deliver astronomical returns if its concept proves successful—or would they prefer to allocate capital to a large, established technology company, already profitable and enduring, where artificial intelligence may enhance its business incrementally but not fundamentally transform its existence? For Marks, this reflective inquiry encapsulates the key trade-off confronting investors today.
He warned that far too many participants in the market are viewing artificial intelligence not as a field of innovation requiring discernment and patience, but as if it were a high-stakes lottery. In their excitement, they are allowing the faint possibility of a colossal windfall to obscure the statistically far greater likelihood of disappointment and loss. As he explained, many reasoning voices in the investment community justify their purchases by arguing, “Although these companies might face a low probability of success, if one of them hits, the payoff could be enormous — therefore, I should buy.” Marks labeled this rationale as emblematic of what he calls the “lottery-ticket mentality,” a mindset where the allure of outsized gains eclipses sober judgment about risk and sustainability.
This warning from Marks is not a sudden observation, but rather the continuation of a consistent message he has delivered over recent months. In a 2023 dialogue with noted financial historian Edward Chancellor for Oaktree’s “Behind the Memo” series, Marks acknowledged that artificial intelligence will indeed transform the global economy and reshape industries. Yet, he also emphasized the sobering reality that most of the companies currently attracting speculative capital under the AI banner will likely end up with little to no lasting value. On the recent podcast, he revisited these sentiments, drawing explicit parallels between today’s AI-driven fervor and earlier speculative booms such as the late-1990s dot-com craze. During that period, the promise of the internet ignited a similar wave of unrealistic expectations, as investors convinced themselves that early movers in a revolutionary technology were destined to dominate their markets indefinitely.
Marks elaborated that nearly every financial bubble in history has been fueled by something perceived as new, groundbreaking, and transformative. He pointed out examples across centuries — from the growth-stock surge of 1969 and the housing mania preceding the 2008 financial crisis, to the dot-com explosion in 1999, the South Sea Bubble of 1720, and even the Tulip Mania that swept through the Netherlands in 1636. In each case, a revolutionary idea captured the collective imagination, and unrestrained optimism allowed valuations to drift far beyond any reasonable connection to underlying fundamentals. According to Marks, these episodes unfold because human imagination, once unleashed, tends to operate without restraint, soaring into speculative fantasy while ignoring the gravitational force of economic reality.
He underscored that in truth, the majority of fledgling enterprises, no matter how innovative their missions or how promising their prototypes, ultimately fail to survive the journey from concept to profitability. With respect to AI, he described the current investor choice as a binary decision: one can either make all-or-nothing bets on companies that depend exclusively on an unproven AI breakthrough, or invest in preexisting technology giants that already command strong earnings and may integrate AI as a supplementary tool to enhance productivity rather than as a life-or-death gamble.
Explaining his own preference, Marks made clear that he would rather own shares in established, profitable technology leaders than risk capital on fragile, speculative startups whose valuations rest purely on hopes of a future revolution. These mature firms — the “tech titans” that form the backbone of the digital economy — possess robust balance sheets, proven business models, and operational flexibility to deploy artificial intelligence as an incremental advantage. In contrast, he noted, the fledgling AI-focused startups now attracting feverish attention are often overhyped and structurally vulnerable. Even if AI development proceeds more gradually or unevenly than the market expects, established corporations are positioned to absorb both the gains and the growing pains of technological adoption.
However, Marks cautioned that even when a technological innovation genuinely changes the world, it does not automatically translate into corresponding profits for investors. He encapsulated this crucial insight in a simple yet profound statement: “Changing the world and investors making money are not the same thing.” Many have mistaken transformative progress for guaranteed financial success — a conflation that history repeatedly proves costly. To reinforce his argument, Marks revisited a parallel drawn from Warren Buffett’s cautionary remarks at Berkshire Hathaway’s 2000 annual meeting, when Buffett warned that the internet stock frenzy had driven valuations so high that they became detached from the actual earning power of the underlying businesses. The disconnect between revolutionary technology and profitable investment outcomes, Buffett argued, was at the heart of that bubble’s collapse — and Marks contends that the same blind faith threatens to reappear in the current AI boom.
In summary, Howard Marks’s message strikes a timeless chord: speculative enthusiasm, when untethered from rational valuation, almost always leads to disappointment. Just as the dot-com bubble, the housing mania, and earlier financial frenzies all revealed, new technologies may indeed reshape society, but they rarely enrich the majority of those who rush in without due diligence. His counsel to today’s investors, therefore, is one of disciplined pragmatism — to prize proven profitability over seductive narratives, and to favor the sturdy foundation of established enterprises rather than chase the shimmering promise of another unsustainable moonshot.
Sourse: https://www.businessinsider.com/howard-marks-says-ai-hype-is-fueling-risky-moonshot-bets-2025-12
