Market Skepticism Grows Over Massive Artificial Intelligence Spending

Recent market troubles in artificial intelligence have slowed down the high optimism surrounding the sector, according to Howard Marks, co-chair of Oaktree Capital Management LP. Marks noted in a Bloomberg TV interview that people are now pausing to be more thoughtful and skeptical, which he considers a healthy change. Investors are growing less patient with tech companies whose main businesses are slowing down while they spend heavily on artificial intelligence. Recent financial results from Alphabet Inc. and Amazon.com Inc. have raised worries that artificial intelligence spending is hurting the very businesses that pay for it. Marks pointed out that high excitement has made artificial intelligence a crowded trade over the past few years, leading to lower standards and higher prices. Companies are currently locked in an artificial intelligence arms race and raising trillions of dollars. Marks compared this scale by noting that a trillion dollars equals one dollar a second for 31,000 years. He questioned whether these investments will generate enough business and profit to provide a good return. In a separate Bloomberg TV interview, Capital Group vice chair Jody Jonsson warned about a gap between what artificial intelligence companies expect and how fast businesses can actually adopt the technology. Jonsson also pointed out that the debt picture is complicated because much of the financing sits off balance sheet in unconsolidated vehicles among a small group of companies.

Context

When a new technology sparks massive investor excitement, markets often see a wave of heavy spending before profits can catch up. Financial experts frequently warn about high debt and crowded trades when capital flows too fast into a single sector. This pattern mirrors earlier market cycles where heavy upfront spending outpaced actual business returns.