Will artificial intelligence massively increase corporate profits and spawn an army of new tech giants?
Probably. But over the past week, investors have made it clear that they think that will happen slower, not sooner.
In the first half of this year, Wall Street sent tech stocks, and indeed many other companies, soaring on the hope that the hundreds of billions of dollars it has poured into AI would soon pay off. The theory was that companies that successfully deployed AI strategies would soon enjoy a windfall of reduced costs and extra profits.
But something interesting happened this week: The Nasdaq plummeted 5% (though tech stocks recovered somewhat in midday trading on Friday) after Wall Street began to worry that the hoped-for AI utopia might not come true as quickly as initially thought. You see, most of the companies betting big on AI have so far seen very little financial return from it.
Alphabet CEO Sundar Pichai has been unusually candid about the “invest now, worry later” mentality that permeates the tech industry. On a quarterly earnings call with analysts on Tuesday, he dismissed criticism of the company’s surge in AI spending, saying, “As we navigate this curve, the risk to us of underinvesting is much greater than the risk to us of overinvesting.”
Investors were reeling: Alphabet’s shares were down 6% this week as of midday Friday, despite the company’s better-than-expected profits.
Meta, Microsoft, Amazon and Apple will also come under fire over their revenues next week, while Mark Zuckerberg, Satya Nadella, Andy Jassy and Tim Cook will have to defend their big AI investments.
Don’t get me wrong, I’m not a pessimist about AI. AI will revolutionize business, from back-office chores to doctors taking notes during patient visits. But I’m also a realist. Most companies are still in the very early stages of adopting the technology, and a broader rollout will take time, especially given the very real risks of illusion and inaccuracy. Most of the promised economic benefits — or workforce synergies, in corporate euphemism — are probably a long way off.
There are some exceptions, of course, but most involve companies selling the basic tools customers need to adopt AI. Clear winners include chipmaker Nvidia and major cloud service providers Alphabet, Microsoft and Amazon, which are also having to invest heavily to expand their data centers to keep up with demand.
So is it natural for Wall Street to be nervous about its first bets on AI’s short-term gains? Yes. History shows that technology is indeed transformative, but it’s long-term. For example, online retail took years to take off after the dot-com bubble burst, bankrupting many investors in the process. Meanwhile, video streaming and social media were slow to take off initially because consumers weren’t interested in watching movies online and the technology that allowed them to connect with friends was glitchy. AI is no different in that it won’t necessarily follow Wall Street’s timeline.
Verne Kopytoff
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Today’s data sheet was edited by David Meyer.
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“While the United States currently leads in AI development, there is no guarantee that it will be able to maintain its leadership in the future. Authoritarian governments around the world are prepared to spend enormous amounts of money to catch up and eventually surpass the United States.”
—OpenAI CEO Sam Altman use The Washington Post The op-ed argues that controlling AI is the “urgent issue of our time” and calls for “a global coalition of like-minded countries, led by the U.S., and an innovative new strategy” to ensure that AI benefits “the largest number of people possible.”
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Before you leave
Ferrari deepfake scam attempt. Bloomberg has an interesting story about how some sophisticated scammers tried to get in touch with Ferrari executives. First, they sent the executives a WhatsApp message pretending to be from CEO Benedetto Vigna, followed by a phone call from a deepfake audio of Vigna. Whatever the goal of the attempt, it came to an abrupt end after an unnamed executive asked the audio a question that only Vigna knew the answer to.
