The co-founder and co-chairman of Oaktree Capital Management noted that the so-called hyperscalers, for whom AI is a key part of business, may be overvalued or undervalued, but current prices for hugely profitable companies like Microsoft, Amazon and Google are unlikely to have been “ruiningly excessive.”
Investing in AI startups like lottery tickets, says Marks
It’s important to wait and see what kind of valuation AI giants OpenAI and Anthropic have when their IPOs happen, Marks said. According to him, some of these startups with multi-billion dollar valuations can only be considered lottery tickets. “Most people who play lotteries end up with worthless tickets, but the few winners become very rich,” he said.
The billionaire investor said the question remains whether the scale of spending on AI infrastructure is excessive. He asked AI chatbot Claude, who replied that since current demand for AI exceeds supply, infrastructure investments are not excessive. However, Marks said this argument does not take into account the infrastructure already in place, as well as the possibility that demand growth could slow or that infrastructure construction could get ahead of it.
Current AI developments are just the beginning…
Marks noted that what we’re seeing today in terms of rapidly advancing AI technology is just the beginning. “I would say that its potential is more likely to be underestimated than overestimated today. However, that is not the same as saying AI investments are cheap or even reasonably priced,” he said in his latest memo to Oaktree clients.
However, the market expert said no one can say for sure whether this is a bubble. That’s why he would advise people to go all in, without recognizing that they risk going bankrupt if business goes bad.
What’s the best approach for AI stocks?
But this doesn’t mean you have to go all out and risk missing one of the big technological steps forward, Marks said. “A moderate position, applied with selectivity and caution, seems 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 resembled a personal note from a friend or colleague. It argued logically, anticipated points I might make in response, added humor, and strengthened its credibility by candidly acknowledging the limitations of AI, just as I might. “I’ve asked AI questions and gotten answers before, but I’ve never gotten such a personal explanation as in this case,” he said.
Marks added that this experience has taught him not to think of an AI model as a search engine that takes in data and regurgitates it. “Rather, it is a computer system that can synthesize data and reason based on it,” he said.
According to Marks, the pace at which developments in the field of AI are taking place is different than ever before. “It is capable of changing the world at a speed that is almost instantaneous, surpassing the ability of most observers to anticipate or even understand,” he said. However, his position warrants both optimism and caution.
While he acknowledged that spending on AI infrastructure is increasingly shifting from speculative capital investments for model training to inference investments backed by visible demand, he questions whether current shortages can justify the size of projects in the pipeline. He also identified a worrying element of “circular” revenue: AI companies are buying from each other rather than from end users.
Can AI be a good investor?
In response to the question of whether AI can be a better investor than humans, Marks said he believes there will continue to be human investors who are superior to AI because he doesn’t think AI will be able to do an unbeatable job in these things.
“Because much of the investment process comes down to speculation, and because of the less than total reliability of AI, I think it is unlikely that AI will be infallible as an investor. It will propose well-reasoned hypotheses, but these – like human decisions – will not always be right. Before investors take action on Al’s hypotheses, I think they will have to be tested for reasonableness. No one can do this infallibly, and most people probably won’t either. However, I think superior investors will have to will have the opportunity to add value in this way,” he said.
This comes amid concerns about disruption in the technology sector, which has dragged down global tech stocks. Back home, IT stocks are down 20% so far this month on Dalal Street.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)
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