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By Opalesque: In his most recent memo, Howard Marks, co-chairman of Oaktree, examines whether artificial intelligence represents a market bubble, drawing parallels to historical technological revolutions while acknowledging AI's unique characteristics and uncertainties.
The nature of bubbles
Marks distinguishes between two types of bubbles: "mean-reversion bubbles" (financial fads like subprime mortgages that create no lasting progress) and "inflection bubbles" (transformative technologies like railroads and the internet that permanently change society). Inflection bubbles, while destructive to many investors, accelerate technological adoption by compressing decades of development into years through aggressive capital deployment.
The bubble pattern is consistent: a revolutionary technology captures imaginations, early participants profit enormously, FOMO drives later entrants to invest without regard to reasonable returns, and painful losses follow-though long-term societal benefits may emerge.
Current AI landscape
AI dominates today's economy disproportionately. According to Morgan Stanley, AI accounts for 75% of S&P 500 gains, 80% of profits, and 90% of capital expenditures. Nvidia exemplifies this mania, growing from $626m at IPO to briefly reaching $5tln-roughly 8,000x appreciation over 26 years.
Unlike the dot-com bubble, AI already has substantial revenues and users. Claude Code and similar products show explosive growth, w...................... To view our full article Click here
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