“Since we don’t fully know the business potential of AI or its impact on profitability, this question cannot be answered… There is certainly a lot of excitement for AI businesses. We will know in 10 years if the resulting profits justify it,” he said in his latest memo to Oaktree clients.
The co-founder and co-chairman of Oaktree Capital Management noted that so-called hyperscalers, for whom AI is an important part of the business, may be overvalued or undervalued, but it’s unlikely that today’s valuations will prove “extremely devastating” for hugely profitable companies like Microsoft, Amazon and Google.
Investing in AI startups is like a lottery ticket, says Marks
It’s important to wait and see what kind of valuations AI giants OpenAI and Anthropic get when they launch their IPOs, Marks said. According to him, some of these startups with multi-billion dollar valuations can only be seen as lottery tickets. “Most people who participate in the lottery end up with worthless tickets, but a few winners become very rich,” he said.
The billionaire investor said the question remains whether the intensity of spending on AI infrastructure is too much. He asked the AI chatbot Cloud, which responded that since the current demand for AI outstrips the supply, the investment on infrastructure is not high. However, Marks said this argument does not take into account all the infrastructure building that is already in place, and there is also the possibility that demand growth may slow or that infrastructure building may outpace it.
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Today’s AI advancements are just the beginning…
Marks noted that what we see today is just the beginning in terms of rapidly advancing AI technology. “I would say its potential today is under-estimated rather than over-estimated. However, that’s not the same as saying AI investments are on the bargain counter or even reasonably priced,” he said in his latest memo to Oaktree clients.
However, market experts said no one can say for sure whether this is a bubble. Hence, he would advise people that one should go all in without accepting that they face the risk of ruin if things go badly.
What’s the Best Approach to AI Stocks?
But this does not mean that one should go all out and risk missing one of the great technological steps forward, according to Marx. “A middle position, applied selectively and judiciously, seems like the best approach,” he said.
Marks explained that his interactions with cloud chatbots show how fast AI is advancing. He said the chatbot’s response reads like a personal note from a friend or colleague. He argues logically, I can make anticipatory points in response, inject humor and bolster his credibility by frankly acknowledging the limitations of AI, as I can. I’ve asked AI questions before and gotten answers back, but I haven’t had the kind of personal revelation that I have in this case,” he said.
Marks added that this experience taught him not to think of AI models as search engines that retrieve and reorganize data. “Rather, it’s a computer system capable of synthesizing data and reasoning from it,” he said.
According to Marks, the pace at which AI is developing is unlike anything seen before. “It is capable of changing the world at a speed that approaches instantaneousness, surpassing the ability of most observers to anticipate or even comprehend,” he said. Yet his optimism warrants both caution.
While he acknowledges that spending on AI infrastructure is increasingly shifting from speculative model-training capex to predictive capex backed by perceived demand, he questions whether the current crunch can justify the scale of projects in the pipeline. He also flagged the worrying element of “circular” revenue – AI companies buying from each other rather than from end-users.
Can AI be a good investor?
In response to a question about whether AI could be better investors than humans, Marks said he believes there will continue to be human investors who are better than AI, because he doesn’t think AI can do these things invincibly.
“Because so much of the investment process comes down to guesswork, and because of AI’s less-than-total reliability, I think it’s unlikely that AI will be as inaccurate as an investor. It will propose well-reasoned hypotheses, but they – like humans’ judgments – won’t always be correct. Before investors think about taking action based on a ‘guess,’ they think they’ll check the ‘guess.’ Although AI can’t do these valuations better, I believe the best investors will have the ability to add value in this way.
This comes amid concerns of disruption in the tech sector, which is pushing global tech stocks lower. Back home, IT stocks have fallen as much as 20% on Dalal Street so far this month.
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)
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