In a market obsessed with finding the next "top," hearing the word "bubble" usually sends investors running for the exits. But Jon Gray, the President and COO of Blackstone ($BX), thinks the current anxiety is exactly what the doctor ordered.
According to Gray, the widespread fear that we are in a bubble—whether in Artificial Intelligence (AI), private credit, or the broader stock market—is a feature, not a bug. In a recent interview, the man who helps steer a $1.3 trillion investment empire argued that this "overarching caution" acts as a governor on the market engine, preventing the kind of reckless euphoria that leads to true catastrophes.
"I think one advantage of the current environment is that there's a lot of negative sentiment," Gray noted. "To some extent, this overarching caution helps prevent things from getting out of control."
The AI Debate: Is Nvidia the New Cisco?
The elephant in the room is, of course, AI. With Big Tech pouring billions into data centers and GPUs, skeptics are dusting off their dot-com crash playbooks. The comparison usually lands on Cisco Systems (CSCO), the networking giant that briefly became the world’s most valuable company in 2000 before crashing back to earth.
Gray, however, suggests the math doesn't quite support the panic—at least not yet. He points out a critical valuation gap: At the peak of the dot-com mania, Cisco’s Price-to-Earnings (P/E) ratio soared past 100x. Today, Nvidia (NVDA)—the poster child of the AI boom—trades at a forward P/E of approximately 43x.
The "room for imagination" in 2000 was detached from reality, whereas today’s AI leaders are generating tangible, massive cash flows. However, Gray isn't giving the sector a blank check. He warns that the risk lies in the future: "If this trend continues for another five years, leading people to believe 'trees can grow to the sky,' then it will always be a risk."
The Private Credit Warning
While AI gets the headlines, the private credit market is where the rubber meets the road for many institutional investors. The sector has exploded in size as banks stepped back from lending, but cracks are appearing.
Gray acknowledged the "bubble" chatter in private lending, a concern validated by recent high-profile defaults. The bankruptcy of automotive parts supplier First Brands served as a wake-up call, reminding the market that even "secured" loans aren't immune to bad underwriting. For Gray, these localized failures are healthy reminders that risk is real, forcing lenders to tighten their standards before the whole system goes off the rails.
Lessons from the Trenches: The $14 Billion Payday
Gray’s perspective isn't just theoretical; it’s bought and paid for with scar tissue.
He frankly admits that easy markets make for lazy investors. When "investments go up no matter what you buy," you don't learn anything. His own career is a testament to learning the hard way.
In the late 1990s, caught up in the pre-dot-com frenzy, Gray bought a building in California. He admits he was "blinded by previous success" and failed to see the asset's inherent flaws. It was his first losing trade, a stinging reminder that momentum is not a strategy.
But his masterclass in resilience came in 2007, with Blackstone’s acquisition of Hilton Hotels. On paper, it looked like a disaster. Blackstone took Hilton private in a massive leveraged buyout just moments before the Global Financial Crisis (GFC) melted the global economy. At one point, the investment was down 70% on paper. Critics called it one of the worst deals in history.
Gray, however, didn't panic. He focused on the "environment"—the quality of the brand, the management team, and the long-term travel trends—rather than the temporary stock price. Blackstone restructured the debt, improved operations, and waited.
The result? When Blackstone finally exited the position fully in 2018, it had realized a profit of roughly $14 billion, turning a potential "failure" into arguably the most profitable private equity deal of all time
The "Environment" Strategy
This experience shifted Gray’s entire philosophy. He now prioritizes the investment "environment" over the sticker price.
Gray explains that if you can correctly identify three things—secular tailwinds, asset quality, and management capability—you can survive a bad entry price. "Even if the timing of entry is poor and a high premium is paid," he notes, "the investment may still ultimately yield good results."
In today's market, that means looking past the "bubble" headlines. Whether it's AI or real estate, the question isn't "Is it expensive?" The question is, "Is the growth real enough to bail me out if I'm wrong about the price?"
For now, Gray seems to think that as long as investors remain scared, the market remains investable. It’s when the fear disappears that you should really start to worry.