Apollo president cautions investors on AI spending boom benefits
Jim Zelter advises caution regarding expectations of strong returns from AI investments
Tech corporations are investing trillions in artificial intelligence (AI), but Jim Zelter, the President of Apollo Global Management, cautioned that investors shouldn’t assume these investments will be lucrative.
"In our past 30 years, we've seen similar trends with cell phones and other tech uses. There's no doubt there will be massive utility," Zelter mentioned on the Goldman Sachs' "Exchanges" podcast published on Thursday.
"However, will the economic stakeholders receive adequate returns on their investments?" he questioned.
The expansion is already influencing the sector’s economics. Zelter estimated that just US data centers might need $5 trillion to $6 trillion in the coming five years.
"A big capital expenditure cycle is pushing an asset-light industry into being asset-heavy," he added.
Furthermore, a crucial question, he noted, is what returns shareholders will eventually obtain.
"Just because companies seek capital, it doesn't mean they represent sound investments," Zelter remarked.
For Apollo, this spending surge presents a financing chance — but one necessitating careful consideration.
Zelter advised investors against treating equity-like risks as safe, fixed-income exposure, underscoring the need for high-risk investments to yield proper compensation and for lenders to maintain strong downside safeguards.
Zelter's admonition comes amid rising discourse over whether the AI surge is tipping into exaggeration.
Other notable investors are also voicing concerns about the mounting enthusiasm for AI by investors.
Howard Marks, the co-founder of Oaktree Capital Management, expressed in December that a "lottery-ticket mindset" is prevalent regarding AI among numerous investors.
In February, seasoned trader and economist Steve Hanke informed Business Insider that AI is "overhyped and potentially perilous."
A fresh KPMG US survey revealed that three-quarters of large-company CEOs feel that generative AI might have been overhyped over the past year, though many acknowledge its longer-term disruptive potential in being underappreciated.
But they continue investing: Almost 80% of the CEOs shared with KPMG they intend to allocate a minimum of 5% of this year's capital towards AI.