On Wednesday, Howard Marks, co-founder of Oaktree Capital, argued in a column that while the AI investment boom has sparked bubble concerns, the current landscape differs fundamentally from the dot-com bubble. The veteran investor, who has witnessed multiple market cycles, noted that while AI-driven speculation exists, it shouldn’t be dismissed as irrational exuberance.
Marks highlighted that NVIDIA, as an AI leader, trades at around 30x forward P/E—a premium valuation but "not crazy" for a high-growth, profit-generating company. This pales in comparison to the sky-high multiples seen during the 1999 tech bubble. He emphasized that unlike the dot-com era, AI products already exist, demand is surging, and revenues are materializing rapidly.
The Oaktree founder observed that AI now underpins much of the S&P 500’s gains and contributes significantly to U.S. GDP through capital expenditures. Yet, with hundreds of billions pouring into the AI race, the ultimate profit winners remain unclear. Marks advised investors to avoid either extreme—staking everything on AI or sitting out entirely—and instead pursue selective, measured exposure.
**A Seasoned Perspective on Bubbles**
Having lived through past bubbles, Marks noted that historical losses rarely deter new speculative frenzies. Short memories and the allure of transformative technologies—especially those "everyone knows" will change the world—override caution.
During recent client meetings in Asia and the Middle East, he was repeatedly asked whether AI is a bubble. While acknowledging his lack of technical expertise, Marks offered a balanced view: investors funding revolutionary advancements accelerate progress, but much capital will inevitably burn. The key is avoiding catastrophic losses.
**Why "This Time Is Different"**
Marks conceded that AI’s potential to reshape the global economy is widely accepted. Yet today’s euphoria—such as AI startups raising $1B in seed rounds without clear products—echoes past excesses. Proponents argue this cycle differs because AI already delivers revenue, unlike the dot-com era’s vaporware. NVIDIA’s 30x P/E, while steep, is far below 1999 telecom/media/tech valuations.
**The Debt-Fueled Arms Race**
Skeptics point to parallels: unclear profit paths and a winner-takes-all race. Initially funded by equity, AI competition now pushes firms toward debt—a tool that can backfire if misused. Marks stressed that disciplined capital structures and lender prudence will determine outcomes.
Given AI’s vast unknowns, Marks concluded that neither blind conviction nor total avoidance is wise. A selective, cautious approach offers the best path forward.
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