"Jim Zelter stated, "Just because companies need capital, doesn't mean they're all great investments." He emphasized the importance of understanding the economic returns on AI investments."
"Zelter noted, "There's a massive capex cycle going on that's turning an asset-light business into asset-heavy," highlighting the significant financial shifts occurring in the industry."
"He cautioned that higher-risk investments must be compensated accordingly, stating, "investors shouldn't treat equity-like risk as if it were safe, fixed-income exposure.""
"Zelter's concerns echo those of other investors, with Howard Marks mentioning a "lottery-ticket mentality" among investors regarding AI, indicating a potential overexuberance."
Tech companies are investing trillions in artificial intelligence, but the returns on these investments are uncertain. Jim Zelter of Apollo Global Management warns that while AI will have significant utility, the economic returns for investors may not be favorable. The buildout of data centers could require $5 trillion to $6 trillion in the next five years, shifting the industry from asset-light to asset-heavy. Investors need to approach these high-risk investments with caution and ensure strong downside protections.
Read at www.businessinsider.com
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