“AI technology is exceptionally expensive.”
Fool’s Gold
The current frenzy over AI resembles the early days of gold being found in California in the 19th Century, with everyone rushing into the AI sector hoping it’ll make them rich.
But there’s a huge issue: Goldman Sachs analysts have concluded, according to The Economist, that AI just isn’t making any serious money yet.
Tellingly, Goldman found that companies that hoped to profit from using AI to boost productivity — ranging from H&R Block to Walmart — have seen their shares vastly underperform the broader stock market since the tail end of 2022.
AI’s market penetration is also surprisingly shallow. Only five percent of businesses are using AI, according to a US Census Bureau report flagged by The Economist, and that number is only projected to rise to about 6.6 percent by this autumn.
Adoption rates may be stymied by concerns over hallucinations, when AI just makes stuff up, and security and privacy issues because these models are essentially black boxes that may spit out important trade secrets.
In other words, there’s a huge amount of hype — but so far, the only companies making much actual revenue off AI are the ones selling the hardware it needs, like Nvidia.
Profit Motive
In a report last month on generative AI, Goldman Sachs Jim Covello had harsh words for the industry.
“AI technology is exceptionally expensive, and to justify those costs, the technology must be able to solve complex problems, which it isn’t designed to do,” he said.
Yes, AI is expensive to deploy and run, not even counting its harmful impact on the environment. So companies using it want to see major returns.
So far, it sounds like they aren’t. Maybe the real question is how much runway the AI industry has before business leaders move onto the next thing.
One exception, not that it helps above-board businesses? Criminals. Hackers are using AI to steal an untold amount of money, which has driven companies to spend more cash on cybersecurity measures.
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