“Since we don’t have full knowledge of AI’s business potential or its impact on profitability, this question can’t be answered…there’s certainly great enthusiasm for AI businesses. We’ll know in 10 years whether the resulting profits justified it,” he said in his latest memo to Oaktree clients.
The co-founder and co-chairman of Oaktree Capital Management noted that the so-called hyperscalers, for whom AI is an important part of business, may be overvalued or undervalued, but it is unlikely that today’s prices for enormously profitable companies like Microsoft, Amazon and Google will turn out to have been “ruinously excessive”.
Investing in AI startups like lottery tickets, says Marks
It is important to wait and watch what kind of valuation AI giants OpenAI and Anthropic have when their IPOs kick in, Marks said. According to him, some of these startups with multi-billion dollar valuations can only be viewed as lottery tickets. “Most people who participate in lotteries end up with worthless tickets, but the few winners get very rich,” he said.
The billionaire investor said that the question remains whether the magnitude of spending on AI infrastructure is excessive. He asked AI chatbot Claude, who replied that since the current demand for AI exceeds the supply, the investment on infrastructure is not excessive. However, Marks said that this argument doesn’t take into account all the infrastructure building that is already in place, and also the possibility that the demand growth could slow or infrastructure building could run ahead of it.
Today’s AI advancements are just the beginning…
Marks noted that what we see today in terms of rapidly advancing AI technology is only the beginning. “I would say its potential is more likely underestimated today rather than overestimated. However, that’s not the same as saying AI investments are on the bargain counter or even fairly priced,” he said in his latest memo to Oaktree clients.
However, the markets expert said that no one can definitely say whether this is a bubble. That is why, he would advise people that one one should go all-in without acknowledging that they face the risk of ruin if things go badly.
What is the best approach for AI stocks?
But this doesn’t mean that one should stay all-out and risk missing out on one of the great technological steps forward, according to Marks. “A moderate position, applied with selectivity and prudence, seems like the best approach,” he said.Marks explained that his interaction with the Claude chatbot showed how quickly AI is advancing. He said the chatbot’s response read like a personal note from a friend or a colleague. It argued logically, anticipated points I might make in response, injected humour, and bolstered its credibility by candidly acknowledging AI’s limitations, just as I might do. I’ve asked AI questions before and gotten answers back, but I’ve never received a personalised explanation like I did in this case,” he said.
Marks added that this experience taught him not to think of an AI model as a search engine that retrieves data and regurgitates it. “Rather, it’s a computer system that’s capable of synthesizing data and reasoning from it,” he said.
The pace at which developments in AI are occurring is unlike anything seen before, according to Marks. “It’s able to change the world at a speed that approaches instantaneous, outpacing the ability of most observers to anticipate or even comprehend,” he said. His however warrants both optimism and caution.
While he acknowledged that spending on AI infrastructure is increasingly shifting from speculative model‑training capex to inference capex backed by visible demand, he questions whether current shortages can justify the scale of projects in the pipeline. He also flagged a worrying element of “circular” revenue – AI companies buying from one another rather than from end‑users.
Can AI be a good investor?
Answering that question on whether AI can be a better investor than humans, Marks said that he believes there will continue to be human investors who are superior to AI, since he doesn’t think AI will be able to do an unbeatable job of these things.
“Because a lot of the investing process comes down to speculation, and because of AI’s less-than-total reliability, I think it’s unlikely that AI will be infallible as an investor. It will propose well-reasoned hypotheses, but they – like humans’ decisions – won’t always be right. Before investors take action on the basis of Al’s hypotheses, then, I think they’ll have to be checked for reasonableness. No one can do this infallibly, and most people probably can’t make these assessments better than AI can. Again, however, I believe there will be an ability for superior investors to add value in this way,” he said.
This comes amid worries around disruption in the tech sector, which has been pushing global tech stocks down. Back home, IT stocks have plunged up to 20% on Dalal Street this month so far.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)