Legendary investor Howard Marks is sounding the alarm on what he sees as a dangerous AI investment bubble, drawing parallels to the dot-com crash and other historic market manias. Speaking on the “We Study Billionaires” podcast, the billionaire cofounder of Oaktree Capital Management warned that too many investors are treating AI startups like lottery tickets, chasing moonshot returns while ignoring the high probability of failure.
Marks presented investors with a stark choice: invest in speculative AI startups with no revenues or profits but potential for massive gains, or put money into established tech giants that can integrate AI as an incremental advantage. He criticized what he calls “lottery-ticket mentality,” where investors focus on the slim chance of a jackpot rather than the far greater likelihood that early-stage AI companies will fail.
This isn’t the first time Marks has expressed skepticism about AI investment mania. In a 2023 conversation with financial historian Edward Chancellor, he predicted that while “AI will change the world,” most companies people are investing in today for AI purposes “will end up worthless.” He sees troubling echoes of past bubbles, including the 1999 dot-com crash, the 2006 subprime mortgage crisis, the 1969 growth-stock boom, and even the 1720 South Sea Bubble and 1636 Dutch Tulip Craze.
The common thread in all these bubbles, Marks explained, is “something new” that allows imagination to run wild, detaching valuations from underlying fundamentals. Most early-stage companies, he noted, don’t survive the difficult transition from promise to profitability, making binary bets on AI pure plays particularly risky.
Instead of gambling on unproven startups, Marks advocates for investing in established tech titans like Microsoft, Google, and Amazon that are already generating substantial profits and can integrate AI as an enhancement rather than a make-or-break proposition. These companies, he argues, are positioned to capture AI benefits even if the technology rolls out more slowly or unevenly than hyped.
Crucially, Marks emphasized that technological transformation doesn’t automatically translate into investment returns. “Change the world and investors making money are not the same thing,” he warned, echoing advice from Warren Buffett during the 2000 internet bubble. Buffett had cautioned that internet stock mania had detached valuations from profit potential—a mistake Marks believes is being repeated with AI investments today.
Key Quotes
Do you want to have a novel entrepreneurial startup pure play which has no revenues and no profits today, but could be a moonshot if it works? Or do you want to invest in a great tech company, which is already existing and making a lot of money where AI could be incremental but not life-changing? It’s a choice.
Howard Marks posed this question on the “We Study Billionaires” podcast, framing the fundamental investment decision facing those interested in AI exposure. This quote encapsulates his view that investors must choose between high-risk speculation and more conservative plays in established companies.
People say, ‘Well, they have a low probability of success, but maybe a big payoff, so I should buy it.’ That’s what I call lottery-ticket mentality.
Marks used this characterization to criticize the investment approach many are taking toward AI startups, comparing it to gambling rather than sound investment strategy. This highlights his concern that investors are ignoring fundamental risk-reward analysis.
AI will change the world, but most of the companies that people are investing in today for AI purposes will end up worthless.
This 2023 statement from Marks’s conversation with financial historian Edward Chancellor captures his nuanced view: he believes in AI’s transformative potential while remaining skeptical about most AI investments. It demonstrates that technological revolution and investment success are separate considerations.
Change the world and investors making money are not the same thing.
This succinct warning echoes Warren Buffett’s caution during the dot-com bubble and represents the core of Marks’s thesis. He’s arguing that even genuinely revolutionary technologies can produce terrible investment returns if valuations become disconnected from fundamentals.
Our Take
Marks’s warning deserves serious attention, but it also reveals an important nuance often lost in AI discussions. He’s not an AI skeptic—he explicitly acknowledges AI will “change the world.” Rather, he’s cautioning against the assumption that transformative technology automatically creates profitable investments. History supports his view: the internet did revolutionize society, but countless dot-com companies still went bankrupt, wiping out investors.
The distinction he draws between AI pure plays and established tech companies integrating AI is particularly insightful. Companies like Microsoft, Google, and Amazon have diversified revenue streams, existing customer bases, and the resources to weather AI’s uncertain development timeline. Startups betting everything on unproven AI applications face existential risk with each funding round. For investors, this suggests a barbell strategy might be prudent: core holdings in profitable tech giants supplemented by small, calculated bets on promising AI startups—treating the latter as true venture capital rather than sure things.
Why This Matters
This warning from one of the world’s most respected investors carries significant weight for the AI industry and broader markets. Howard Marks has successfully navigated multiple market cycles over decades, and his track record of identifying bubbles before they burst makes his concerns about AI investment mania particularly noteworthy. His analysis suggests that while AI technology will indeed transform industries, the current valuation environment for AI startups may be unsustainable.
The implications extend beyond individual investors to the entire AI ecosystem. If a correction occurs, it could trigger a funding winter for AI startups, making capital harder to access and potentially slowing innovation. However, it could also create a healthier market by redirecting capital toward companies with sustainable business models rather than pure speculation. For established tech companies, Marks’s preference for their stocks over AI pure plays validates their strategy of integrating AI into existing profitable businesses rather than betting everything on unproven technology. This perspective is crucial for anyone involved in AI investment, development, or business strategy.
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Source: https://www.businessinsider.com/howard-marks-says-ai-hype-is-fueling-risky-moonshot-bets-2025-12