Does talk of government backstops mean an AI bubble is about to burst?
It’s been an uncomfortable few days for AI vendors. On Friday, the big tech companies saw $1.2 trillion wiped off their market valuations, reflecting the concerns of many analysts that AI valuations are too high and the market is heading for a serious crash.
Just a few days earlier, OpenAI CFO Sarah Friar suggested that the US government could help the industry by providing a “backstop” to guarantee commercial loans financing AI chips in data centers — although hours later she took back those words in a LinkedIn post. The same day, OpenAI CEO Sam Altman also denied the company wanted government loan guarantees in a mammoth 6,000-character post on X (formerly Twitter).
So how should CIOs view the future of their own AI investments? Financial analysts have a mixed view.
According to Shawn DuBravac of the Avrio Institute, big tech customers need to be more pragmatic, but don’t need to panic. “Companies don’t need to rewrite their strategy, but market volatility is a stress test of AI investment. The large tech companies recognize that the long-term demand for AI infrastructure is very strong.
Ilya Rybchin, principal at financial advisory firm BDO USA, said that CIOs shouldn’t be worried about the technology becoming obsolete or vendors disappearing. “Customers should be worried about the anemic return on their own AI investments, irrespective of how their vendors are performing or what the media is saying about their vendors.”
Freeze AI procurement
He had some stark advice. “Companies should freeze new AI procurement. They should stop buying tools until they can prove they’re getting value from the ones they have.” He added that many companies are buying multiple AI platforms without using any effectively. “It’s like buying three chainsaws when you haven’t learned to use the first one,” he said.
Global technology futurist Daniel Burrus of Burrus Research predicted that organizations may need to rethink staffing levels. “We’re seeing a lot of layoffs due to AI investments, particularly among coders. However, I think these companies are missing a trick. I prefer to think of AI as Augmented Intelligence as it’s about augmenting, rather than replacing.
He said that there is already a change in the air. “We are seeing companies who have laid off people hiring them back.”
Concerns that the AI market is a bubble that’s about to burst won’t entirely go away. Altman has said that OpenAI is projecting an annualized revenue run rate of $20 billion this year and is committed to spending $1.4 trillion over the next eight years. Just last week, the company signed a deal with AWS for $38 billion to host its services on Amazon’s cloud service. That’s heavy investment and there will certainly be doubts whether it can grow revenue to match that expenditure.
Burrus draws parallels with Amazon.. “It took a very long time for them to make a profit but they’re racing for the intelligence to be better than a human being, and that is going to take some time.” However, Amazon didn’t make the dizzying levels of investment that OpenAI is committing itself to.
Not an extinction-level event
There is agreement, however, that the AI industry as a whole can survive without government support for one failing company.
DuBravac said, “If OpenAI stumbles, customers would feel turbulence and disruption but nothing that they couldn’t overcome.”
And Rybchin said that it could aid the progress of AI. “OpenAI failing would not be an extinction-level event for AI. On the contrary, it could be a healthy catalyst, forcing a necessary diversification of the AI landscape, encouraging competition and innovation from a wider range of players.Does talk of government backstops mean an AI bubble is about to burst? – ComputerworldRead More