Howard Marks, co-chairman of Oaktree Capital Management, officially labeled the artificial intelligence (AI) boom a “bubble” in a memo released Tuesday, but with a crucial caveat: avoiding the sector completely could be as dangerous as betting the house on it.

AI’s ‘Irrational Exuberance’ With A Kernel Of Truth

In his latest memo, titled “Is it a Bubble?,” Marks characterizes the current market sentiment as “irrational exuberance.”

However, he distinguishes the AI craze from “mean-reverting” financial fads, categorizing it instead as an “inflection bubble.”

Much like the railroad or internet booms, he argues that the capital currently being incinerated is “carpet-bombing” the future with essential infrastructure.

Marks warns that even productive bubbles inevitably inflict pain on investors who overpay. He notes that while the technology will likely change the world, the vast majority of early investments will be wiped out.

“The excesses accelerate the adoption of the technology in a way that wouldn't occur in their absence,” Marks writes. “The key is to not be one ...