Written by: Zhao Ying

Source: Wall Street News

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

Howard Marks, co-founder of Oaktree Capital Management, stated at a capital market industry conference in New York on Tuesday that the power of AI is inseparable from its unpredictability; it is far from sufficient for investors to formulate strategies solely based on their judgments of future trends.

He pointed to Jack Dorsey’s Block announcing last month the layoff of 4,000 people—about half of its total workforce—as an example, directly indicating the severe underestimation of the market regarding the impact of AI.

Marks believes that in the face of the 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: Both a Power and a Risk

In an interview with Bloomberg Television host Lisa Abramowicz, Marks stated that the power that grants importance to AI also bestows it with elusive uncertainty—whether it will do what it will do, what it will not do, or to what extent it will replace human jobs.

Marks supported his views with specific data. He mentioned Jack Dorsey’s Block announcing layoffs of about 4,000 people last month, which is approximately half of its total staff, and questioned, "How many people around the world truly understand the significance of this?"

"Most people in the investment community decide their course of action based on their judgments of the future," he said, "this is not enough."

Marks also pointed out that the rise of AI has intensified investors' concerns about the lack of transparency in the private market.

Historical Patterns of New Technology Bubbles

Having witnessed multiple cycles of boom and bust, Marks remains vigilant about the market frenzy sparked by new technologies. He stated that new things can always excite people's imaginations and are easily marketed to the public, and 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 new financial innovations can lead people to buy in based solely on a paper promise without understanding the downside risks."

The Investment Logic of AI: Equity over Debt

In terms of specific investment strategies, Marks expressed a clear preference for equity investment. He believes that if investors are bearing the fundamental business model risks of AI companies, they should receive corresponding returns as owners rather than participating as fixed income investors.

"If you are bearing the fundamental business model risks, shouldn’t you gain returns by becoming an owner rather than a fixed income investor?" he said.