Tech Companies Spending Big on AI, But Will the Investment Pay Off?

Tech companies are investing heavily in the AI trend, but the results may not be immediate.

High Investment, Low Returns?

With companies gearing up to spend more than $1 trillion on artificial intelligence, a Goldman Sachs report raises a critical question: Will this substantial investment eventually yield results?

This significant investment will be directed towards building the necessary data centers for AI operations, upgrading the power grid, and developing AI chips. However, shortages of these essential components could potentially lead to underwhelming returns for companies.

According to Jim Covello, the head of Global Equity Research at Goldman Sachs, "AI technology comes with substantial costs, and for these expenses to be justified, the technology must be capable of solving complex problems, which it currently struggles to do."

He further explains, "The initial costs are so high that even if they decrease over time, the decline would have to be significant to make the automation of tasks using AI financially feasible. In our experience, even basic tasks like summarization often result in incoherent and nonsensical outcomes."

Challenges Faced by Tech Giants

Google faced setbacks when it scaled back AI integration in its search operations due to the system making peculiar suggestions. For example, a Business Insider correspondent was advised by the AI to put glue on their pizza to prevent the cheese from sliding off.

The tech industry's reliance on the assumption that AI costs will substantially decrease over time is also questioned in the report. This assumption is particularly dependent on a scenario where competition challenges Nvidia, the current market leader in AI chip manufacturing.

Optimism Among Experts

Despite the challenges, some experts quoted in the Goldman Sachs report remain optimistic about the future of AI technology. Kash Rangan, a senior equity research analyst at the firm, highlighted that while AI technology is costly compared to human cognitive abilities, historical trends suggest that the cost dynamics will evolve favorably.

Eric Sheridan, another senior equity research analyst at Goldman Sachs, drew parallels between the initial lukewarm reception of technologies like the iPhone and Uber and the current skepticism towards generative AI. He believes that just as society eventually embraced these innovations, generative AI will likely follow suit.

As the technology landscape continues to evolve, the future of AI remains uncertain but holds significant potential for transformation.

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By: kbalevic@businessinsider.com (Katie Balevic)
Title: Tech Companies Spending Big on AI, But Will the Investment Pay Off?
Sourced From: www.businessinsider.com/ai-return-investment-disappointing-goldman-sachs-report-2024-6
Published Date: Sat, 29 Jun 2024 16:58:33 +0000