Oaktree Capital's Marks: NVIDIA Corporation (NVDA.US) with a P/E ratio of 30 "is not crazy." AI may not necessarily be a repeat of the internet bubble.

On Wednesday, Howard Marks, co-founder of Oaktree Capital, wrote in his column in the Financial Times in the UK that despite concerns about a bubble in AI investments, the current situation is fundamentally different from the internet bubble. This experienced investor, who has been through many bubble cycles, believes that while the growth in AI demand is highly unpredictable and investor behavior undoubtedly has speculative characteristics, it should not simply be classified as irrational exuberance. Marks points out that NVIDIA Corporation, a leading company in AI, with its forward P/E ratio of about 30 times, although high, is not "crazy" for an outstanding company that generates huge profits, and is much lower than the valuation levels of some tech stocks during the 1999 internet bubble. He emphasizes that unlike in the past, AI products already exist, the demand is exploding, and they are quickly generating considerable revenue. The founder of Oaktree Capital states that in recent years, the market and economy have become increasingly dependent on AI, with AI stocks contributing to most of the gains in the S&P 500 index, and industry capital expenditures supporting US GDP growth. However, billions of dollars are being invested in the AI race, but the sources of profit and ultimate beneficiaries are still unclear. Marks suggests that investors should not "go all-in" and risk destruction, nor should they "completely absent" themselves from missing out on major technological advances. Moderate and cautious selective investment seems to be the best strategy. Prudent judgment from a bubble veteran Marks has experienced multiple bubble cycles and studied more historical cases. He states that while some may think that the losses from past bubble bursts would prevent the formation of the next bubble, this has never happened and never will. Memories are short, and caution and natural risk aversion cannot resist the dream of getting rich with revolutionary technologyespecially when "everyone knows" it will change the world. He points out that the key issue is that new things should indeed generate enormous enthusiasm, but when the enthusiasm reaches irrational levels, a bubble will form. During his visits to clients in Asia and the Middle East last month, Marks was frequently asked whether there is a bubble in AI. Although he claims to be neither a tech nor stock market expert, he tries to make a rational assessment of the topic. Marks agrees with the research by Byrne Hobart and Tobias Huber, which found that investors inject funds into revolutionary opportunity areas to accelerate their progress. Some funds will be invested in the winning companies that change lives, but a lot of capital will go up in smoke. Of course, the key is not to become an investor whose wealth is destroyed in the process. The "this time is different" argument Marks states that he has not encountered anyone who does not believe in the potential for AI to become one of the most significant technological developments in history that will reshape daily life and the global economy. The current extreme enthusiasm is evident in AI startups raising $1 billion in seed funding, sometimes without even a clear product. Despite the inevitable similarities with past bubbles, believers in technology will argue that "this time is different." Marks points out that almost every bubble will hear these four words, claiming that the current situation is not a bubble. However, Sir John Templeton, who first reminded him to pay attention to these four words, quickly pointed out that 20% of the time, the situation is indeed different. Supporters argue that comparisons with early bubbles are not appropriate. Reasons include: AI products already exist, demand for them is exploding, and they are producing revenue rapidly. In addition, the valuation ratios of mature participants like P/E are reasonableNVIDIA Corporation's forward P/E ratio is about 30 times, which although high, is not "crazy" for an outstanding company that generates huge profits, and is much lower than the trading levels of some telecom, media, and tech stocks during the 1999 internet boom. Debt race: a new risk point Skeptics can easily list similarities between today's events and the internet bubble. The most important issue is that the ultimate profit sources for the AI boom and who will receive these profits are still unclear. Billions of dollars are being invested in the AI dominance race, but we do not know who will win or how it will turn out. Marks points out that so far, most of the AI investments have been equity capital generated from operating cash flow. But now, the arms race in which AI field winners take all is forcing some companies to take on debt. Debt itself is neither good nor bad; it all depends on the debt proportion in the capital structure, the quality of the assets or cash flow used as collateral, alternative sources of liquidity for the borrower, and whether the safety margin provided to the lender is sufficient. We will see which lenders can maintain discipline in the current exciting environment. Given the huge potential of AI and the many unknown factors, Marks states that hardly anyone can determine whether investors' behavior is irrational. Therefore, he advises that no one should go all-in without acknowledging the risks of failure. But at the same time, no one should completely stay away and risk missing out on a great technological leap forward. Marks believes that taking a moderate stance, combined with selective and cautious principles, seems to be the best approach. This article is reprinted from "Wall Street See" by Zhao Ying; GMTEight editor: Chen Xiaoyi.