Oaktree Capital's Marc: Investors Underestimate the Impact of AI

Oak Tree Capital Co-Founder Howard Marks Warns: AI Is Making the World Unpredictable Like Never Before, and Most Investors Have Not Yet Realized the Depth of the Impact

By Zhao Ying

Source: Wallstreetcn

Artificial intelligence is making the world more unpredictable than ever, and most investors have not yet realized the depth of this impact.

Howard Marks, co-founder of Oak Tree Capital Management, stated at a New York capital markets industry conference on Tuesday that the influence of AI is accompanied by its unpredictability. Relying solely on forecasts of future trends to develop strategies is no longer sufficient.

He cited the example of Jack Dorsey’s company Block, which announced last month it would lay off about 4,000 employees—roughly half of its workforce—directly pointing to the market’s underestimation of AI’s impact.

Marks believes that in the face of fundamental business model risks brought by AI, holding equity in AI-related companies is preferable to providing debt financing. Investors should participate as owners rather than fixed-income investors.

The Unpredictability of AI: Power and Risk

In an interview with Bloomberg TV host Lisa Abramowicz, Marks said that the power given to AI also bestows it with elusive uncertainty—regarding what it will do, what it won’t do, and the extent to which it will replace human jobs.

He supported his point with specific data. He mentioned that Jack Dorsey’s company Block announced last month it would lay off about 4,000 people, roughly half of its total employees, and asked, “How many people worldwide truly understand the significance of this?”

“Most of the investment community makes decisions based on their own predictions of the future,” he said, “but that’s not enough.”

Marks also pointed out that the rise of AI has heightened investors’ concerns about the lack of transparency in private markets.

Historical Patterns of Tech Bubbles

Having witnessed multiple cycles of boom and bust, Marks remains cautious about market euphoria driven by new technologies. He said that new innovations always spark imagination and are easily marketed to the public. Because they are new, their flaws have never had the chance to be exposed in practice.

“There has never been a steel bubble or a hamburger bubble in history,” he said. “But new technologies or financial innovations can lead people to buy based on promises without understanding the downside risks.”

Investment Logic for AI: Equity Over Debt

Regarding specific investment strategies, Marks clearly favors equity investments. He believes that if investors are taking on the fundamental business model risks of AI companies, they should earn returns as owners rather than as fixed-income investors.

“If you’re taking on the core business model risk, shouldn’t you earn returns by becoming an owner rather than a fixed-income investor?” he said.