CNBC Television• Oct 13, 2025• 6:23Interview

Oaktree Capital's Howard Marks: Valuations right now are high, but not crazy

Howard Marks•Co-Founder and Co-Chairman, Oaktree Capital

Executive Summary

Howard Marks assesses the current market as expensive, with the S&P 500's forward P/E ratio at 24 versus a historical average of 16, but does not believe it has reached the level of a bubble.
He argues that while there is significant enthusiasm for AI, the key ingredient for a bubble—widespread psychological mania—is currently absent.
Marks discusses the bull case for high valuations, which posits that today's dominant tech companies are qualitatively superior, but he cautions that this is a classic "this time it's different" argument.
He advocates for a flexible "small v" value investing approach, acknowledging the difficulty of applying traditional discounted cash flow analysis to highly conjectural fields like AI.

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Concerns Raised

The S&P 500's P/E ratio is significantly above its historical average, indicating the market is expensive.
The bull case for current valuations relies on a "this time it's different" narrative, which is often a red flag.
It is difficult to apply traditional valuation methodologies to new, high-growth technologies like AI.

Opportunities Identified

AI is a legitimately transformational technology that will likely create substantial long-term value.
The dominant companies in the S&P 500 may be qualitatively superior to those of the past, potentially justifying higher valuations.
The absence of widespread 'mania' suggests the market may not be in a bubble, allowing for continued upside.

Key Themes

Market Valuation and Bubble Psychology

The discussion centers on whether the current market's high valuations, particularly in tech, constitute a bubble. Howard Marks argues that while the S&P 500 is historically expensive, the market lacks the psychological "mania" that characterized past bubbles like the dot-com era.

This provides a framework for investors to assess market risk by distinguishing between high prices driven by enthusiasm and a full-blown speculative bubble, suggesting caution without necessitating immediate defensive action.

The Challenge of Valuing Transformational Technology

AI is acknowledged as a world-changing technology, but its investment case presents a challenge for traditional valuation methods. Marks notes the difficulty of using discounted present value analysis for companies with highly uncertain, long-term potential, making it hard to apply a classic value investing lens.

This highlights the ongoing tension between value and growth investing, forcing investors to consider whether to adapt their valuation models for new paradigms or risk missing out on major technological shifts.

The "This Time It's Different" Narrative

The bull case for today's market is that the leading companies are fundamentally better—with stronger moats, profitability, and growth—justifying their higher multiples. Marks identifies this as a classic "this time it's different" argument, a phrase historically associated with the peak of market cycles.

This serves as a critical warning for investors to remain skeptical of narratives that dismiss historical valuation metrics, as such thinking is a common precursor to market corrections.

Pragmatic vs. Dogmatic Value Investing

Marks differentiates between "capital V" Value investing, a rigid sect with hard rules, and "small v" value investing, which is an open-minded approach to buying assets for less than their intrinsic worth. He favors the latter, suggesting that rigid adherence to a single style can be a disadvantage in a changing market.

This encourages investors to be flexible and adaptable in their philosophy, focusing on the core principle of assessing value rather than being constrained by a narrow definition that may not apply to all asset classes, especially technology.

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Topics

Market Valuation S&P 500 P/E Ratio AI Investing Tech Stocks Investor Psychology Market Bubbles Dot-com Bubble Value Investing Intrinsic Value Discounted Cash Flow (DCF)Howard Marks Market Sentiment This Time It's Different Growth Investing

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