Oaktree Co-CEO Panossian Sees Signs of Exuberance in Data Center Boom

Armen Panossian, co-chief executive officer of Oaktree Capital Management LP, during a Bloomberg Television interview in London. Photo by Betty Laura Zapata /Photographer: Betty Laura Zapata

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(Bloomberg) — The amount of money chasing investments linked to artificial intelligence is creating the “risk of excesses,” said Armen Panossian, co-Chief Executive Officer at Oaktree Capital Management LP.

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There are parallels with the fiber optic boom in the late 1990s and early 2000s when the weight of capital meant capacity began to be constructed without contracts with users in place, Panossian said in an interview with Bloomberg TV.

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“The same is starting to happen in AI with data centers,” he said. “It’s an area we’re watching. We’re careful about not chasing that exuberance.”

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AI has become one of the hottest trades in markets and real estate since ChatGPT’s 2022 debut set off a global building spree for data centers that house the servers and chips powering AI. Private equity, real estate firms, energy providers and sovereign wealth investors have pledged enormous amounts for the facilities and the infrastructure needed to power them. 

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The sector was rattled earlier this year by the emergence of China’s DeepSeek chatbot that needed less computing power, potentially reducing the need for data centers.

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Still, Panossian said there are opportunities for credit managers to provide appropriate funding for projects linked to AI. 

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“From an investment standpoint, there’s a tremendous amount of spending that needs to happen in the entirety of the AI ecosystem, both in terms of software and hardware,” he said. “That’s a very intoxicating feeling.”

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Fundraising Challenges

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Separately, private market fundraising has become a bit more challenging because private equity has been slower to deploy and return capital to investors, Panossian said.

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In direct lending, it “relates to a tightening of spreads that’s occurred in private credit, and so a little bit of tapping of the brakes,” Panossian said. The flow “continues to be quite strong, but I would say it’s slightly reduced from where it was maybe 12 months ago.”

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Panossian said the clearest investment opportunity in Europe is probably in Germany because of the debt to GDP levels there, but Oaktree plans to proceed cautiously for now. 

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“We tend to like to invest more when there’s a dislocation,” he said.

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