Howard Marks says AI will change the world but market judgement awaited on stocks’ valuation

Howard Marks, Co-Chairman, Oaktree Capital Management (Reuters File Photo)

Artificial Intelligence is expected to change the world, much like the internet did in the late 1990s, but assumptions about its market impact and the staying power of leading companies require careful scrutiny, says Howard Marks, Co-Chairman of Oaktree Capital Management.

Speaking at the Moneycontrol Global Wealth Summit, Howard Marks responded to a question on whether the AI-driven market enthusiasm resembles past investment cycles like the Nifty 50 or the dot-com boom. Financial excesses often emerge around transformative technologies, said Marks. "Most bubbles are, by necessity, built around something new, something where there's no precedent, permitting the imagination to fire," he added.

He pointed to historical parallels, citing the Nifty 50 era of the 1960s and 1970s, when a select group of high-growth stocks such as IBM, Xerox, Merck, and Polaroid were seen as unstoppable. Investors believed these companies were so dominant that their valuations could be justified regardless of price. However, the period ended with a sharp decline as economic conditions shifted and many of these stocks saw significant corrections.

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Similarly, in the 1999-2000 dot-com bubble, investors bet heavily on the internet revolution. "People said the internet will change the world. Guess what? The Internet did change the world. They were right, but they were wrong to value the companies as they did," Marks said, adding that many firms that thrived during the bubble eventually became worthless.

Now, AI is driving a similar level of excitement. "We have another new thing—AI. It is expected to change the world. I'm no expert, but I assume it will," he said. However, he cautioned against overconfidence in the persistence of current market leaders. "Assumptions are being made about persistence and leadership. I can't dispel them. I can't endorse them. I only say they require attention," he added.

Marks also weighed in on the dominance of the so-called Magnificent Seven stocks, which contributed to more than 40 percent of market returns in 2023 and 2024. While such concentration could serve as a "yellow light" for investors, he said that some market participants view these companies as fundamentally strong. "The mere fact that they're up isn't troublesome, if, in fact, they are indeed great companies at reasonable prices," he said.

Ultimately, the markets will give judgement on AI ‘in the coming years’, said Marks.

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