Billionaire Investor Howard Marks Warns Against AI's 'Powerful' Novelty And FOMO As Nvidia, Other AI-Linked Stocks Tumble In 2025: Says This Enthusiasm 'Sometimes Leads To Bubbles'

In the rapidly evolving world of artificial intelligence (AI), investors have been captivated by the potential of AI-linked stocks, with nvidia corporation (NVDA) being a prime example. However, billionaire investor Howard Marks, the co-founder and co-chairman of Oaktree Capital Management, has recently sounded a cautionary note about the enthusiasm surrounding AI stocks, warning that the novelty and fear of missing out (FOMO) could lead to market bubbles. As AI-linked stocks, including nvidia, have tumbled in 2025, investors are left wondering if Marks' warnings are a harbinger of things to come.

Marks, who predicted the dot-com crash 25 years ago, has once again raised concerns about the current market dynamics in his latest memo, "On Bubble Watch." He highlights the powerful novelty of AI, which, combined with the fear of missing out, can lead to overinvestment and potential market bubbles. Marks notes that the thrill of the new thing and the fear of missing out are an incredibly powerful combination that has led to market bubbles in the past.

The current enthusiasm surrounding AI is evident in the soaring valuations of AI-linked stocks and exchange-traded funds (ETFs). Nvidia, a leading AI chipmaker, has seen its stock price surge by over 1,800% in the past five years, while its forward price-to-earnings (P/E) ratio remains elevated at just over 28 times this year's analyst estimates. This rapid growth and high valuation, driven by AI enthusiasm, could be a cautionary sign for investors, as highlighted by Marks.

Nvidia's fiscal 2025 fourth-quarter report showed remarkable growth, with revenue rising 114% to $130.5 billion on top of 126% revenue growth the year before. The company's data center business, which includes AI workloads, led the way, with revenue surging 93% year over year to $35.6 billion. Despite the strong report, Nvidia's stock has underperformed in 2025, trading down about 10.5% year to date. This underperformance highlights the risks associated with FOMO-driven investing, as investors may have entered the market at elevated valuations, only to see the stock price decline.

AI-linked ETFs, such as the iShares US Technology ETF (IYW) and the Fidelity MSCI Information Technology Index ETF (FTEC), have also largely underperformed in 2025. This underperformance can be attributed to the FOMO-driven investing that led to overinvestment in the sector, followed by a correction as investors reassess the valuations and fundamentals of AI-related stocks.

Marks' warnings about AI's powerful novelty and FOMO come at a time when the sector is facing headwinds, including macroeconomic concerns and potential competition. The recent emergence of DeepSeek, a new AI model, has only fueled the demand for AI, but the weakness in the sector is evident after unbridled enthusiasm in 2024. As AI-linked stocks and ETFs continue to underperform in 2025, investors are left wondering if Marks' warnings are a harbinger of things to come.

In conclusion, Howard Marks' cautionary stance on AI stocks serves as a reminder that the novelty and FOMO surrounding AI can lead to market bubbles. As AI-linked stocks, including Nvidia, have tumbled in 2025, investors should be cautious and maintain a balanced perspective when considering AI-related investments. While AI's potential remains vast, investors should focus on intrinsic value and avoid the pitfalls of FOMO-driven decision-making. As Marks notes, every bubble starts from widespread conviction, and it's essential for investors to remain vigilant and avoid overinvesting in the face of enthusiasm.