The current enthusiasm surrounding artificial intelligence, particularly the soaring valuations of companies like Nvidia and the broader “Magnificent Seven,” naturally invites comparisons to past market manias. Yet, despite widespread concern over substantial AI capital expenditures, Owen Lamont, a portfolio manager at Acadian Asset Management and a former University of Chicago finance professor, suggests the U.S. stock market has not yet met the critical conditions for a full-blown financial bubble. He articulates a framework for bubble detection, emphasizing that while the market certainly feels exuberant, a key component remains absent.
Lamont, who has also taught at institutions such as Harvard, Yale, and Princeton, outlines what he calls his “Four Horsemen” of a bubble: overvaluation, widespread speculative beliefs, significant equity issuance, and substantial inflows of capital. He concedes that three of these elements are undeniably present in the market today. Valuations are elevated, retail investors are actively participating, and a general sense of frothiness pervades the sentiment. However, the crucial missing piece, in his analysis, is issuance – the rush by corporate insiders to sell overvalued stock to the public.
Historically, Lamont points to events such as the South Sea Bubble of 1720, the dot-com crash of 2000, and even the speculative frenzy of 2021, which he considers a bubble despite differing from many of his peers, as periods characterized by a flood of new shares hitting the market. This issuance, he explains, represents the “smart money” cashing out, offloading shares onto less informed investors. What is observed in the market today, however, is precisely the opposite. U.S. firms have engaged in approximately $1 trillion worth of stock buybacks over the past year, effectively shrinking the open float of shares. This behavior suggests that corporations, acting as the ultimate insiders, view their own stock as undervalued rather than overpriced.
The relative lack of initial public offerings (IPOs) is particularly “baffling” to Lamont, given the current market conditions. He recalls that during 1999, the market absorbed over 400 IPOs, and 2021 saw a proliferation of special purpose acquisition companies (SPACs) and meme stocks. In contrast, the current landscape for new public listings remains surprisingly subdued. He postulates that the absence of these new offerings, particularly from potentially fraudulent companies that often emerge during speculative peaks, indicates that the market has not yet reached its terminal bubble phase.
For those monitoring the market for signs of a turning point, Lamont suggests keeping a close watch on the calendar, particularly as 2026 approaches. He believes that if high-profile private companies, such as SpaceX, decide to go public, potentially triggering a cascade of copycat IPOs, this could signal the “smart money” finally moving towards the exit. This perspective gains further traction with recent reports from the Financial Times indicating that Blackstone, the world’s largest private equity firm, anticipates a blockbuster year for IPOs. Jonathan Gray, president of Blackstone, has reportedly stated that 2026 represents “one of our largest IPO pipelines in history.” Similarly, Kim Posnett, co-head of investment banking at Goldman Sachs, has predicted an impending “mega-cycle” for IPOs, characterized by unprecedented deal volume and size.
Adding to this anticipation, The Wall Street Journal recently reported that OpenAI is reportedly planning to go public in the fourth quarter of 2026. Such a high-profile listing could indeed be the catalyst Lamont describes, potentially unlocking a wave of similar offerings and fundamentally altering the market’s dynamics. While concerns persist regarding the substantial capital expenditures by tech giants in AI, Lamont views this not as speculative mania, but as a “rational gamble,” akin to historical investments in industries like oil exploration or railroads—expensive, high-risk endeavors that often occur in the early or middle stages of transformative technological cycles. However, he cautions that historically, periods of massive capital expenditure have often coincided with overvalued markets, suggesting investors should remain vigilant.
