Apollo warns of the risks of an excessive rush towards AI

Caution Recommended by Apollo Amidst AI Hype

Jim Zelter, president of Apollo Global Management, recently expressed his reservations about the prevailing optimism surrounding investments in artificial intelligence (AI). According to him, while AI is set to transform the economy, the benefits for investors are not guaranteed. Zelter made these statements during Goldman Sachs' "Exchanges" podcast, released on Thursday.

The tech sector is currently experiencing a boom in AI spending, making companies more capital-hungry. However, Zelter warns that this enthusiasm could turn into irrational exuberance. Companies are investing trillions of dollars in AI, but investors should remain cautious about the expected returns.

Massive but Uncertain Investments

During his remarks, Zelter emphasized that while AI promises massive utility, the economic returns for investors remain unclear. He compared this situation to other past technological revolutions, such as that of mobile phones.

Zelter also mentioned the growing need for infrastructure, estimating that American data centers could require between $5 trillion and $6 trillion over the next five years. He specified that this transformation of companies from light to heavy assets raises questions about the actual benefits for shareholders.

Risks and Opportunities for Investors

For Apollo, this spending cycle represents a financing opportunity, but one that must be approached with discipline. Zelter stressed that higher-risk investments must be adequately compensated, and lenders should ensure solid protections against downturns. He also noted that investors should not treat risk equivalent to that of equities as if it were a safe fixed-income exposure.

Other influential voices share these concerns. In December, Howard Marks of Oaktree Capital Management criticized the "lottery ticket mentality" of AI investors, while in February, Steve Hanke described AI as "overvalued and potentially dangerous" during an interview with Business Insider.

Survey on CEO Perception

A survey conducted by KPMG in the United States reveals that three-quarters of CEOs of large companies believe that generative AI was overhyped last year. Despite this, nearly 80% of the CEOs surveyed plan to allocate at least 5% of their capital to AI this year, highlighting a persistent interest in the disruptive potential of this technology.