Howard Marks warns: The impact of AI on employment is "frightening," and the tech giants' reckless borrowing poses hidden dangers

Howard Marks, co-founder of Oaktree Capital Management LP, warned on Tuesday that artificial intelligence (AI) is creating a "frightening" situation for employment prospects, and the widely assumed significant productivity gains do not take into account how many people can afford the goods produced by the additional output. In a blog post released on Tuesday, Marks wrote: “I worry that a few highly educated billionaires living in coastal areas may be seen as having created technology that has caused millions to lose their jobs. This is bound to lead to more severe social and political divisions than we currently face, making the world more susceptible to populist, incendiary politics.” Marks stated that because AI is a "winner-takes-all arms race," companies like Microsoft, Alphabet, Amazon, Meta, and Oracle have to take on "radical scale" debt. He said: “It is reasonable to assume that one of the reasons they are investing such huge sums is to make it difficult for smaller companies to keep up.” Media reports indicate that Wall Street is preparing to provide massive funding to finance the rollout of AI investments, which may take years to return to investors. Data compiled by the media shows that, so far this year, the volume of U.S. credit transactions related to data centers has exceeded $161 billion. Therefore, if this technology ultimately underperforms and potentially creates a bubble, lenders are trying to protect themselves in advance. Marks pointed out that while the demand for AI technology is "completely unpredictable," investor behavior is showing "speculative" tendencies. He mentioned that the 30-year bonds issued by Meta and Alphabet to finance their AI investments yield only about 100 basis points more than U.S. Treasuries of the same duration. He questioned: “Is it worth taking on 30 years of technological uncertainty for a return that is only slightly higher than a risk-free debt investment? Will those investments made through borrowing into chips and data centers be able to maintain productivity levels long enough to repay these 30-year debts?” Marks stated that it is currently difficult to determine whether the enthusiasm surrounding AI has become excessive, and it will take years to know if this enthusiasm is rational. On the positive side, AI may help fill the labor gap created by the retirement of millions of baby boomers before 2035. However, Marks still expressed: “The AI revolution is different from previous technological revolutions, and these differences are both exciting and concerning. To me, it feels like the genie has been let out of the bottle, and it cannot be put back in.”