With the tech industry heavily investing in artificial intelligence, questions arise about the potential returns. Jim Zelter, president of Apollo Global Management, advises caution for investors.
During a recent appearance on Goldman Sachs’ “Exchanges” podcast, Zelter highlighted the uncertainty surrounding AI investments. “We’ve seen this many times in our last 30 years, whether it’s cell phones or other technology uses. There’s no doubt they’re going to have a massive utility,” he remarked, questioning if investors will reap adequate returns from these ventures.
Zelter pointed out the massive financial requirement, estimating that American data centers might need $5 trillion to $6 trillion over the coming five years. “There’s a massive capex cycle going on that’s turning an asset-light business into asset-heavy,” he noted, underscoring the industry’s transformation.
He emphasized that not all investments are worthwhile, stating, “Just because companies need capital, doesn’t mean they’re all great investments.” For Apollo, the current AI investment surge spells a financing opportunity, albeit one that demands careful risk assessment.
Zelter strongly advised against perceiving equity-like risks as safe investments, stressing the necessity for risk-adjusted returns and robust downside protections for lenders. His warnings come amid a growing debate about whether the AI sector is overhyped.
Other prominent investors share similar concerns. Howard Marks, cofounder of Oaktree Capital Management, criticized the “lottery-ticket mentality” among AI investors in December. In February, Steve Hanke, an experienced trader and economist, described AI as “overhyped and potentially dangerous” to Business Insider.
Despite these concerns, a KPMG US survey reveals that nearly 80% of large-company CEOs plan to allocate at least 5% of their capital to AI this year. While three-quarters of these executives acknowledged potential overhype around generative AI, many also recognize its long-term disruptive potential.
