Nvidia is shedding value, OpenAI is sputtering, dubious generative AI ads are flooding the market, and signs point to a deflating tech bubbl
This is it. Generative AI, as a commercial tech phenomenon, has reached its apex. The hype is evaporating. The tech is too unreliable, too often. The vibes are terrible. The air is escaping from the bubble. To me, the question is more about whether the air will rush out all at once, sending the tech sector careening downward like a balloon that someone blew up, failed to tie off properly, and let go—or more slowly, shrinking down to size in gradual sputters, while emitting embarrassing fart sounds, like a balloon being deliberately pinched around the opening by a smirking teenager. But come on. The jig is up. The technology that was at this time last year being somberly touted as so powerful that it posed an existential threat to humanity is now worrying investors because it is apparently incapable of generating passable marketing emails reliably enough. We’ve had at least a year of companies shelling out for business-grade generative AI, and the results—painted as shinily as possible from a banking and investment sector that would love nothing more than a new technology that can automate office work and creative labor—are one big “meh.” As a Bloomberg story put it last week, “Big Tech Fails to Convince Wall Street That AI Is Paying Off.” From the piece: Amazon.com Inc., Microsoft Corp. and Alphabet Inc. had one job heading into this earnings season: show that the billions of dollars they’ve each sunk into the infrastructure propelling the artificial intelligence boom is translating into real sales. In the eyes of Wall Street, they disappointed. Shares in Google owner Alphabet have fallen 7.4% since it reported last week. Microsoft’s stock price has declined in the three days since the company’s own results. Shares of Amazon — the latest to drop its earnings on Thursday — plunged by the most since October 2022 on Friday. Silicon Valley hailed 2024 as the year that companies would begin to deploy generative AI, the type of technology that can create text, images and videos from simple prompts. This mass adoption is meant to finally bring about meaningful profits from the likes of Google’s Gemini and Microsoft’s Copilot. The fact that those returns have yet to meaningfully materialize is stoking broader concerns about how worthwhile AI will really prove to be. Meanwhile, Nvidia, the AI chipmaker that soared to an absurd $3 trillion valuation, is losing that value with every passing day—26% over the last month or so, and some analysts believe that’s just the beginning. These declines are the result of less-than-stellar early results from corporations who’ve embraced enterprise-tier generative AI, the distinct lack of killer commercial products 18 months into the AI boom, and scathing financial analyses from Goldman Sachs, Sequoia Capital, and Elliot Management, each of whom concluded that there was “too much spend, too little benefit” from generative AI, in the words of Goldman, and that it was “overhyped” and a “bubble” per Elliot. As CNN put it in its report on growing fears of an AI bubble, Some investors had even anticipated that this would be the quarter that tech giants would start to signal that they were backing off their AI infrastructure investments since “AI is not delivering the returns that they were expecting,” D.A. Davidson analyst Gil Luria told CNN. The opposite happened — Google, Microsoft and Meta all signaled that they plan to spend even more as they lay the groundwork for what they hope is an AI future. This can, perhaps, explain some of the investor revolt. The tech giants have responded to mounting concerns by doubling, even tripling down, and planning on spending tens of billions of dollars on researching, developing, and deploying generative AI for the foreseeable future. All this as high profile clients are canceling their contracts. As surveys show that overwhelming majorities of workers say generative AI makes them less productive. As MIT economist and automation scholar Daron Acemoglu warns, “Don’t believe the AI hype.”
6 August 2024
