Armen Panossian Warns of AI Infrastructure Overload Amid Investment Surge

The surge in artificial intelligence infrastructure has triggered concerns among market experts. On June 30, Armen Panossian, co-CEO of Oaktree Capital Management, said the rush of money chasing AI-related investments mirrors past bubbles. Speaking to Bloomberg TV, he compared the current AI wave to the fiber optic boom of the 1990s. In both cases, too much capital began flowing into projects before users existed. Panossian warned that the same risk is now emerging in AI, especially with data center construction. While interest in AI investments remains high, this could signal deeper consequences for sectors like crypto.

Overbuilding in AI Raises Valuation Red Flags

Panossian’s remarks highlight a growing fear in financial circles. Many investors are throwing large sums into AI data centers without long-term contracts or clear demand signals. This exuberance is not new. Similar patterns appeared in the dot-com era when companies built capacity far beyond actual usage. AI has become user-friendly since ChatGPT’s 2022 debut. It also led investors into advanced technology firms. All industries, including real estate, health, energy, and many more, joined the AI race. But when infrastructure expands too fast, returns often suffer. And that creates a ripple effect on valuations and market confidence.

The threat of overbuilding could lead to corrections in AI-linked real estate and infrastructure assets. When valuations drop, investors tend to pull back. For AI and tech-based sectors, including cryptocurrency networks that depend heavily on this infrastructure, such shifts could impact performance and costs. If demand doesn’t keep pace, these vast facilities could sit underused, draining capital and pushing down asset prices.

Crypto Faces Indirect Exposure to AI Infrastructure Risks

The AI infrastructure boom doesn’t only affect tech giants or private equity firms. It also influences cryptocurrency networks. These networks rely on high-performance data centers for computing and validation. Bitcoin mining and blockchain operations demand consistent, scalable access to power and processing capacity. If AI infrastructure sees valuation corrections, crypto compute costs could spike or infrastructure access might tighten.

Crypto has always thrived on affordable and scalable computing. Many coins and platforms are based on data and technology. If AI valuations fall, crypto infrastructure costs could surge, and logistical access might tighten. Market sentiment might shift if traders start questioning the sustainability and infrastructure. Crypto markets, which often react to tech signals, may interpret this as a warning. A decline in AI infrastructure valuations might act as an upstream indicator, offering an early signal for crypto market shifts.

Credit Market Still Offers Select Opportunities

Despite the caution, Panossian remains optimistic about some areas. He believes credit managers can still find solid opportunities in the AI ecosystem. Both the software and hardware sides of AI need large-scale investment. But the key lies in selecting projects with real fundamentals, not just hype. Investors need to avoid speculative bubbles and seek partnerships with grounded growth plans.

Panossian also mentioned that Europe, especially Germany, could offer a stable investment ground. With manageable debt levels and a cautious market outlook, it’s one region where Oaktree sees potential. However, fundraising in private markets has slowed. Capital deployment remains slower than expected, and spreads in private credit have tightened. That has led to what he calls a “tapping of the brakes.” The flow of money remains strong, but the pace is cooling.

A Game-Changer for AI and Crypto Infrastructure

The AI boom has opened incredible possibilities, but it also carries real risks. Overbuilding without confirmed demand could create shockwaves across sectors. When AI and crypto rely on the same server racks and silicon, cracks in one ripple through the other. Investors need to watch infrastructure trends carefully. Corrections in one domain can affect others, especially when everything runs on the same wires and chips.

As excitement continues around AI and machine learning, Panossian’s warning feels timely. Rational investment should guide the way, not just fear of missing out. The infrastructure race isn’t just about speed, it’s about balance. Watching this space closely could help spot early signs of change in broader tech and crypto markets.