Opinion
The GenAI hype check is great news for artificial intelligence
Summary
- It’s a relief to see stocks like Nvidia and Microsoft come off their AI-driven highs. This month’s deflation has drawn attention to the technology’s real value. This is good, as GenAI needs realistic projections, not hallucinations, to emerge well and thrive.
Is Generative AI worth the money? Tech leaders like Microsoft chief technology officer Kevin Scott says costs will come down and capabilities improve, but as Wall Street heads toward correction territory— Nvidia and Microsoft, two stocks that have ridden the AI wave, are down more than 15% and 8% respectively since 10 July—enterprises are grappling with a deeper problem: How do they put AI to use and measure the return on that investment?
Confusion over the answer has led to discomfort, sparked by bearish reports from Goldman Sachs and Sequoia Capital questioning whether GenAI will make as much money as the market seems to think.
AI capital expenditure will reach between $600 billion and $1 trillion in the coming years, the reports estimate, and spending on infotech will rise 8% this year, according to Gartner.
Also read: It’s swallowed billions of dollars, but has AI lived up to the hype?
If investors are taking a breather, that’s good. As my colleague John Authers recently argued about Big Tech stocks, corrections can be healthy when a market position has been extreme. The AI-driven market boom and jump in capital spending at companies like Alphabet and Tesla has happened far too quickly, benefiting those who didn’t always deserve the rally.
A senior AI executive at a large tech company recently told me point blank that artificial intelligence had become overblown in the market. He’d lived through several hype cycles before, he added, and this one was no different.
There are differences from the dotcom boom and bust. Businesses are looking at tangible outcomes more than they were in the early 2000s, when the focus was more speculative and based on market potential. Metrics for success are focused on efficiency gains and cost savings instead of grabbing eyeballs.
And businesses are using more sophisticated risk models and arguably more rigorous return-on-investment calculations because they’ve learned hard lessons from the dotcom era.
The nagging problem for GenAI is that tech firms have set expectations too high by marketing the technology as a magical general-purpose solution that can enhance business processes. It often cannot right away.
Some companies are also rolling out gizmos without showing employees how to use them effectively. That’s always a mistake. Give a power tool to someone with training and they can build a treehouse; give it to an amateur and we get a mess.
But even while the process is often fitful, GenAI is taking hold in several markets. In the video games industry, major studios like Activision Blizzard are using it for concept art and asset generation, leading in some cases to widespread layoffs, as a Wired investigation found.
Also read: Nvidia Corp: $500 billion wiped off in a week; stock falls 13%. Here’s why
JPMorgan Chase CEO Jamie Dimon recently told Bloomberg News that the bank was putting AI into all of its processes— “trading, hedging, research, every app, every database"—sometimes to replace humans.
Payments company Klarna Bank said earlier this year that its customer service chatbot did the work of 700 customer service reps, meaning it could reduce the number of contractors it regularly hired, saving it $40 million a year. TravelPerk, a startup for booking corporate travel, says its margins have grown to 70% from less than 40% since it started using generative AI last year.
Analyzing AI’s return on investment is difficult. It involves taking abstract values like efficiency and productivity and turning them into numbers. Take CNH Industrial, a farming and construction equipment manufacturer.
It has been using an AI-powered chatbot to guide its service technicians on repairs, and to help its software developers write code, according to a profile on CIO.com. It’s easier to measure success on the first project (did customer satisfaction scores go up?), but not so much for the second (did coders log how much time they saved?).
And don’t forget that AI is also a controversial technology. Klarna’s CEO Sebastian Siemiatkowski got some blowback from users of X when he posted details about how the company’s AI assistant “performs the equivalent job of 700 full time agents."
Some suggested it was callous to celebrate the displacement of so many workers. If companies find that GenAI is helping their bottom line, they might not always want to talk about it.
Businesses and investors risk going too far in dismissing generative AI as all hype, especially if that means they’ll neglect some of its more insidious traits around the perpetuation of bias, copyright infringement and the erosion of human agency.
Also read: GenAI is a force multiplier, and India will be the testbed: McKinsey CTO
The current market scepticism is healthy and much needed—but in at least in some markets, including customer service, marketing, gaming and other creative industries, it’s also clear that generative AI is here to stay. ©bloomberg
