Howard Marks says AI rout punctured aura of infallibility

Howard Marks, co-chair of Oaktree Capital Management, said recent setbacks in artificial intelligence stocks have "somewhat burst the bubble of infallibility" around the sector. He called the change healthy for investors who had treated AI as a sure bet. "I think that now people are saying, hold on, wait a minute, let's be a little more thoughtful, let's be a little more skeptical," Marks said in an interview with Bloomberg TV. "That's very healthy."bloomberg.com

His comments came after a rough week for Big Tech. Results from Alphabet ↗ 0.78% and Amazon Amazon.com, Inc. ↘ 0.35% added to concerns that AI is eroding the businesses that pay for the spending, Bloomberg reported.moneycontrol.com

A crowded trade

Marks said the recent bad news in "AI land" mattered less for the size of the price drop than for what it did to investor psychology. "You don't want to invest in something when everybody and his brother think it's can't lose," he said, because "you'll pay a price commensurate with that infallibility," according to the Bloomberg TV interview. He described buying into and lending to AI as "a crowded trade," adding that late in a cycle "the standards have come down, prices have gone up. You have to be cautious."finance.yahoo.com

Marks is known for his January 2000 memo "bubble.com," which warned of dot-com mania before the crash. Last year he wrote that he was on bubble watch. He noted that companies are in an AI arms race to raise trillions of dollars, and said the key question is whether enough business and profit will follow to make those investments pay off. "I think the answer is: Who knows?" he said.moneycontrol.com

Big Tech's cash burn

Alphabet shares fell about 12% on Thursday, October 29, their worst day on record, wiping out about $500 billion in market value. The company reported negative free cash flow of $9.1 billion for the third quarter, and growth in its search advertising business slowed to 12%, TechCrunch reported. Amazon reported negative free cash flow of $42.4 billion for the 12 months ended September 30. It also said it plans $220 billion in capital spending this year, according to Axios. The Nasdaq Composite ended October with its worst monthly drop since March 2025. Intel ↗ 7.71% shares fell 28% on Friday, October 30, the BBC reported.bbc.com+2

Financing worries

In a separate Bloomberg TV interview, Capital Group vice chair Jody Jonsson said enterprises are adopting AI more slowly than AI companies expect. She also said markets are worried about "whether there's enough appetite in both equity and fixed income for all the issuance that's coming to fund it." Jonsson noted that much of the debt sits off balance sheet and is concentrated among a few companies that do business with one another. "The more that they lend their credit to others, the more fragile the system becomes," she said.moneycontrol.com