Howard Marks says the AI boom is drifting into bubble territory, but he notes the greater danger may be staying all-out as the market rewrites financial norms at unprecedented speed.
In a new memo issued to Oaktree Capital Management clients, the billionaire highlights warnings from investor Paul Kedrosky about credit dynamics inside the AI infrastructure buildout.
According to Kedrosky, the AI boom has entered speculative finance territory with leverage, vendor financing, and CapEx growth that exceeds revenue momentum across hyperscalers chasing dominance.
“For AI infrastructure, the warning signs are flashing: vendor financing proliferates, coverage ratios thin, and hyperscalers leverage balance sheets to maintain CapEx velocity even as revenue momentum lags.”
But Marks notes that the AI boom may be different from previous technological cycles. He looks at the speed of model improvement, the difficulty of forecasting true demand and the possibility that AI becomes something closer to a cognitive replacement than a tool.
“The Al revolution is different from the technological revolutions that preceded it in ways that are both wonderful and worrisome. It feels to me like a genie has been released from a bottle, and it isn’t going back in: Al may not be a tool for mankind, but rather something of a replacement…
As one of my younger advisers explained, ‘the speed and scale of improvement mean it’s incredibly hard to forecast demand for Al. Adoption today may have nothing to do with adoption tomorrow, because a year or two from now, Al may be able to do 10x or 100x what it can do today. Thus, how can anyone say how many data centers will be needed? And how can even successful companies know how much computing capacity to contract for?'”
The billionaire ends with the core message that shapes his headline. He says no one can know if this is the true bubble peak, but investors who avoid the sector entirely face their own version of risk.
“Since no one can say definitively whether this is a bubble, I’d advise that no one should go all-in without acknowledging that they face the risk of ruin if things go badly. But by the same token, no one should stay all-out and risk missing out on one of the great technological steps forward.”
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