On December 9, Howard Marks, co-founder of Oaktree Capital, released his latest memo titled "Is AI in a Bubble?"

Marks highlights that the current market consensus views AI as "one of the most significant technological breakthroughs in history," with its influence already evident: - AI-related stocks account for **75% of the S&P 500's gains, 80% of profits, and 90% of capital expenditures**. - NVIDIA, a leader in AI chips, has seen its market cap grow **8,000-fold** since its IPO 26 years ago.

However, Marks cautions that this enthusiasm comes with **substantial uncertainties**: - The direction of AI technology, commercialization paths, profitability models, and eventual winners remain unclear. - Startups with **$50 billion valuations but no products** and questionable "circular transactions" (e.g., NVIDIA’s estimated 15% of 2025 sales tied to such deals) raise red flags.

**Debt-Fueled AI Expansion** AI’s infrastructure demands are staggering: - JPMorgan estimates **$5 trillion** in total costs, with annual capital expenditures nearing **$500 billion**. - Tech giants like Microsoft, Alphabet, Amazon, Meta, and Oracle hold just **$350 billion in cash**, prompting 30-year bond issuances to fund AI bets.

**Key Differences from the Dot-Com Bubble** Unlike the 2000s tech frenzy, today’s AI boom features: - **Real demand**: Firms like Anthropic (100x revenue growth in two years) and Cursor (projected $1 billion revenue in 2024) demonstrate tangible adoption. - **Mature players**: Leading companies boast revenues, profits, and reasonable P/E ratios (unlike the speculative dot-com era).

**Risks: Circular Transactions and Debt** Critics point to opaque deals, such as OpenAI’s **$1.4 trillion pledged investments** funded by reciprocal spending with tech partners. Meanwhile, long-term debt for rapidly evolving tech raises sustainability concerns.

**Marks’ Conclusion: Balance and Caution** 1. **AI’s transformative potential is real**, but historical bubbles (railroads, electricity, broadband) show excess is inevitable. 2. Investors should **avoid overexposure** but not miss the opportunity entirely. 3. **Selective, measured investments**—coupled with scrutiny of debt and valuations—are prudent.

As OpenAI CEO Sam Altman noted: *"Is AI overhyped? Yes. Is it the most important development in decades? Also yes."* The challenge lies in navigating the fine line between irrational exuberance and groundbreaking innovation.

November 9, 2025