Oaktree Capital's Mark: Investors Are Underestimating AI's Impact

Author: Zhao Ying

Source: Wall Street Insights

Artificial intelligence is making the world more unpredictable than ever, and most investors have yet to realize the depth of this impact.

Howard Marks, co-founder of Oak Tree Capital Management, stated at the New York Capital Markets Industry Conference on Tuesday that the influence of AI is accompanied by its unpredictability. Relying solely on predictions about future trends is no longer sufficient for strategy development.

He cited the example of Jack Dorsey’s company Block, which announced last month that it would lay off approximately 4,000 employees—about half of its total staff—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 them with 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 to what extent it will replace human jobs.

He supported his point with concrete data. He mentioned that last month, Jack Dorsey’s Block announced layoffs of about 4,000 people, roughly half of its workforce, 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 concerns among investors 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 frenzy driven by new technologies. He stated 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 solely 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 bearing the risk of the core business model, shouldn’t you seek returns by becoming an owner rather than a fixed-income investor?” he asked.