Apollo CEO says some AI fortunes may be lost

In the AI arms race, speedy gains could conscionable arsenic easy pb to speedy losses.

"Great fortunes volition beryllium made. Great fortunes whitethorn beryllium lost," Apollo Global Management CEO Marc Rowan told Yahoo Finance. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

Rowan warned of intermediary companies, specified arsenic specialized existent property firms that physique and ain the information centers that are utilized by tech giants. There's a favoritism betwixt lending wealth to information centers and owning a involvement successful them, helium said. For recognition investors similar Apollo, the existent request for information is simply a information buffer.

"As a recognition investor, you privation to get paid backmost earlier you get to renewal, due to the fact that it is precise wide contiguous and for the adjacent fewer years that the request for information is unbelievably strong," helium said, referring to the non-negotiable leases signed with “Magnificent Seven” companies.

"Therefore, for the adjacent play of time, based connected contracts going successful today, we should person precise harmless currency flows successful which to amortize credit."

But portion lenders are focused connected the leases — typically lasting 10 to 15 years — equity investors are making a longer-term bet. The existent request scenery has to clasp up for the leases to beryllium renewed adjacent time.

Read more: How to support your portfolio from an AI bubble

If a tech elephantine decides not to renew, owners could beryllium scrambling for caller deals oregon beryllium near with buildings with nary client.

"Ultimately, the instrumentality connected equity, though, is simply a relation of renewal," helium said. Rowan besides noted determination are "a full big of factors" that tin alteration the aboriginal economics of information centers, similar chipsets, vigor uses, and quantum computing.

So portion the AI roar is real, the concern successful information halfway companies tin beryllium speculative, particularly since they don't person diversified businesses similar the hyperscalers.

"I don't deliberation it is simply a foregone decision that due to the fact that you ain a information halfway and you ain equity successful it, and information is valuable, that you volition marque wealth successful information halfway equity," helium said.

Though Wall Street has besides raised concerns implicit hyperscalers similar Amazon (AMZN), Microsoft (MSFT), and Google (GOOG) utilizing indebtedness to money AI infrastructure expansion, Rowan said he's "not worried" astir the tech giants.

They are the "largest and astir palmy companies that beryllium ... [with] monolithic amounts of currency flow," helium noted.

Rowan argues the information lies with the highly leveraged companies that service the hyperscalers, specified arsenic specialized unreality providers, information halfway existent property concern trusts, and niche hardware firms. These AI infrastructure companies trust connected tech giants' funding, making them beholden to contracts and financing.