Apollo’s president warns the AI spending boom may not pay off for investors

• Apollo President Jim Zelter says AI will transform the economy, but investment returns are uncertain.
• AI is driving a spending boom, making tech companies more capital intensive.
• His warning comes as debate grows over whether the AI boom may be veering into hype.

Tech companies are pouring trillions into artificial intelligence, but investors shouldn’t assume the bets will pay off, Jim Zelter, president of Apollo Global Management, said.

“We’ve seen this many times in our last 30 years, whether it’s cell phones or other technology uses. There’s no doubt they’re going to have a massive utility,” Zelter said on Goldman Sachs’ “Exchanges” podcast published on Thursday.

“But is the economic owner going to harvest the right returns for that investment?” he asked.

The buildout is already reshaping the industry’s economics. Zelter estimated that US data centers alone could require $5 trillion to $6 trillion over the next five years.

“There’s a massive capex cycle going on that’s turning an asset-light business into asset-heavy,” he said.

And a key question, he added, is what returns shareholders will ultimately see.

“Just because companies need capital, doesn’t mean they’re all great investments,” Zelter said.

For Apollo, the surge in spending represents a financing opportunity — but one that requires discipline.

Zelter said investors shouldn’t treat equity-like risk as if it were safe, fixed-income exposure. He emphasized that higher-risk investments need to be compensated accordingly, while lenders should ensure they have strong downside protections.

Zelter’s caution comes as debate grows over whether the AI boom is veering into hype.

Other big-name investors have also raised concerns about investor exuberance in AI.

Howard Marks, the cofounder of Oaktree Capital Management, said in December that too many investors have a “lottery-ticket mentality” when it comes to AI.

In February, veteran trader and economist Steve Hanke told Business Insider that AI is “overhyped and potentially dangerous.”

A recent KPMG US survey found that three-quarters of large-company CEOs said generative AI may have been overhyped over the past year, even as many said its longer-term disruptive potential remains underappreciated.

But they’re still spending: Nearly 80% of the CEOs told KPMG they plan to allocate at least 5% of capital to AI this year.