The IPO Frenzy Has Begun — ft. Howard Marks
Recorded on the day SpaceX is set to complete the largest IPO in history at close to a **$2 trillion valuation and more than 100x sales** — with Anthropic and OpenAI both filed to go public — Howard Marks (Oaktree co-chairman) delivers a master-class in calibrated caution rather than a call. His core move: **AI is a 'concept' you can't put numbers on, so participating is closer to speculating than analytical value investing**, and the only honest stance is to place yourself deliberately on a risk spectrum (hyperscalers → established one-product AI names → pre-revenue lottery-ticket startups) and size accordingly. Marks refuses to declare a bubble — 'nobody, including me, should say definitively that this is a bubble' — but pairs that with the historical base rate: every prior tech revolution (railroads, radio, autos, computers, the internet) drew in too much capital, built too much infrastructure, and lost money for late capital providers. His memo line: **if AI's exuberance doesn't produce a money-losing bubble, 'it'll be the first.'** The investable nuance for builders and allocators: profitability still ultimately governs value (he invokes Buffett's internet warning that efficiency is not the same as profitability), and the unanswered question is *who captures* the gains — if AI is mainly a labour-saving tool sold into a price war, the customer (the shipping/retail/warehouse user), not the AI purveyor, may keep the surplus. On valuation, he is notably un-alarmist: the non-Shiller S&P PE is ~23 vs an 80-year average of 16 (lofty, not naughty), and **the Mag 7 ex-Tesla trade in the 30s — cheap versus the Nifty Fifty's 60–90 PEs of his early career**. He flags disruption as the new permanent risk (moats like newspapers and SaaS — see the early-Feb 'saspocalypse' — evaporate fast), warns the alt-asset boom (private credit now ~$1.7T across ~700 managers, only ~3% predating the GFC) is untested by a downturn — 'it's only when the tide goes out that we find out who's been swimming naked' — yet calls private-credit fear *overblown*. Closing advice to young builders: investing rewards those who can live with a batting average far from 1.000 (Buffett's record rests on ~12 great investments in 60–70 years); if you need to be right every time, become a dentist.
Key points
- Episode is timed to SpaceX completing the largest IPO in history at close to a $2 trillion valuation and more than 100x sales, with Marks framing it as the marquee signal of late-cycle animal spirits.
- Anthropic and OpenAI have both filed to go public; Google just announced the biggest stock sale in history and Meta is signalling a major equity raise — an unprecedented wave of equity about to hit the market.
- Marks's central thesis: AI is a 'concept' whose parameters can't be defined, so buying these names is closer to speculating than analytical value investing — calibrate your spot on the risk spectrum rather than pretend to a fair-value number.
- Historical base rate: railroads (1860s), radio (1920s), autos, computers (1950s-60s) and the internet (2000) all drew in too much capital and lost money for late providers — 'if this... doesn't produce a money losing bubble, it'll be the first.'
- He explicitly refuses to call it a bubble ('nobody, including me, should say definitively'), but insists the danger is in not being alert to the possibility.
- Valuation context is un-alarmist: non-Shiller S&P PE ~23 vs 80-year average of 16 (~50% rich); Mag 7 ex-Tesla trade in the 30s — cheap versus the Nifty Fifty's 60-90 PEs in his early career (he joined Citibank research in 1969).
- A three-tier AI risk spectrum: hyperscalers (Amazon, Google, Meta, Microsoft — moats + cash flow but capped upside), established one-product names (Anthropic, OpenAI, Nvidia — unlikely to be obsoleted but pricier), and pre-revenue startups he calls 'lottery tickets.'
- Profitability still governs value long-term: he cites Buffett's 2000 internet warning that efficiency 'is not the same as adding to profitability,' and asks who actually captures AI's gains — possibly the customer, not the AI seller, in a labour-saving price war.
- Disruption is the new permanent risk to moats — newspapers and SaaS both looked impregnable until they weren't; he points to the early-February 'saspocalypse' when AI coding models triggered fears the whole software industry was finished.
- Alt-asset warning: private credit/direct lending went from non-existent in 2010 to ~$1.7 trillion across ~700 managers, only ~3% of whom predate the GFC — untested by a downturn ('only when the tide goes out...'); yet he calls current private-credit fears overblown, mostly about illiquidity in non-traded BDCs (5%-per-quarter redemption caps).
- Career advice: investing has no reliable physical rules; success means living with a batting average far from 1.000 — Buffett attributes his record to ~12 great investments over 60-70 years — so if you need to be right every time, become a dentist or engineer.
Notable quotes
So I wrote in a memo recently, this year, and I think it's true that if this technological innovation with its exuberance doesn't produce a money losing bubble, it'll be the first.
But the problem with that, Ed, is they always say that this time it's different, is never different.
My favorite fortune cookie says that the cautious seldom err or write great poetry.
You know, if, if somebody will, will tell me what they think anthropic net earnings will be in 2036, I'll bet them that they're not within 50% of the truth.
So to look at the max 7, take out Tesla, they're selling at PE ratios in the 30s.
I described this in a recent memoir, A Lottery Ticket.
As Buffett says, it's only when the tide goes out that we find out who's been swimming naked.
Warren Buffett, the most successful investor of all times, attributes his success to 12 investments over the last 60, 70 years.
Themes
- AI-IPO-window reopening
- AI-capex bubble risk
- value-investing under radical uncertainty
- AI-disruption of moats
- private-credit-cycle fragility