The hype around Artificial Intelligence is deafening, with promises of revolutionary change. But one of the world's largest investment firms, Apollo Global Management, is offering a dose of financial reality, questioning AI's profitability.
The Sobering View from the Top
While the tech
world celebrates generative AI, Apollo's chief economist Torsten Slok has presented a starkly different picture. According to his recent analysis, AI has delivered 'zero financial payoff' to corporate America outside of the big tech sector. The firm distinguishes between the 'Magnificent Seven' tech giants (like Nvidia, Microsoft, and Alphabet) and the other 493 companies in the S&P 500. While the tech titans have seen revenue per worker and profit margins soar, these metrics have remained flat for everyone else. This suggests that despite massive investment, most companies are not yet seeing a tangible return, a finding that challenges the narrative of a universal AI-driven boom.
A Tool, Not a Standalone Business
Apollo's assessment hinges on a crucial distinction: AI is a powerful tool, but for most, it is not yet a profitable, standalone business. Apollo Co-President Scott Kleinman has noted that while AI will disrupt sectors like law, accounting, and consulting, the firm is 'massively underweight' on software investments. The logic is that many companies are paying hefty prices for AI tools and services—often driving up costs without a corresponding increase in revenue or productivity. Mainstream businesses are reportedly starting to view spending on AI tokens and models not as a growth driver, but as a cost center that eats into profit margins.
The 'Business Judgement' Filter
This is where 'business judgement' comes in. From a private equity perspective, the central question is whether an investment will generate a return. For AI, that's proving difficult to model. Firms are now applying stricter diligence, questioning if a company's use of AI creates real, defensible value that customers will pay a premium for. Often, they find that AI features are becoming 'table stakes'—expected by customers but not something they'll pay extra for. Apollo's skepticism reflects this hard-nosed financial lens; it’s not enough for AI to be impressive, it must be profitable. The firm’s analysis points out that AI does not understand concepts like accountability, trust, or culture, which are critical for long-term revenue and profit.
The Practical Limits of AI
Beyond the balance sheet, there are practical limits to AI's current capabilities that factor into Apollo's cautious stance. The costs of running AI models at scale are enormous, and for many businesses, these expenses are rising without a clear improvement in performance. Furthermore, AI adoption remains highly concentrated, with the top 10% of businesses accounting for over 95% of spending on major AI tools. This indicates that the transformative effects of AI have not yet spread widely across the economy. Until AI usage becomes more democratized and produces measurable results across various industries, its overall economic impact may remain limited.
Where the Smart Money Is Going
Despite the skepticism, Apollo isn't ignoring AI. Instead, its strategy highlights a different approach. The firm is redirecting capital away from speculative software ventures and toward critical infrastructure and businesses less vulnerable to AI disruption. There is still significant investment flowing into the backbone of the AI revolution—data centers, power grids, and chip financing—which Apollo and other private equity firms are heavily funding. This suggests a belief in the long term importance of the technology, but a more defensive and practical investment strategy. The focus is on the picks and shovels of the gold rush, rather than betting on which individual prospector will strike it rich.
