Amidst the promises and the waste, Artificial intelligence is already inflating investments.
No one can claim any longer that they did not know. The waste in the Artificial Intelligence narrative has reached terrifying levels. Not just worrying. And it is not only the heads of Goldman Sachs and JP Morgan who have warned. More and more people are urging caution, as despite the billions being thrown around, returns remain uncertain.
Essentially, the CEO of HSBC, Georges Elhedery, also warned about the mismatch between the enormous investments and the expected revenues, in his speech at the Global Financial Leaders’ Investment Summit in Hong Kong.
Elhedery underlined that while the computing power for artificial intelligence is critical for its development, current revenue profiles may not justify such massive expenditures.
"Consumers are not ready to pay for it, and businesses will be cautious, as the productivity benefits will not materialize within one or two years," he specifically stated. He emphasized that these are trends that will affect the market over time, with the real benefits and increased expenses expected later than investors have anticipated.
Many warnings
Morgan Stanley estimated in July that over the next five years, global data center capacity will increase sixfold, with data centers and their equipment costing $3 trillion by the end of 2028.
Along the same lines, McKinsey noted in a report in April that by 2030, data centers capable of processing artificial intelligence workloads will require capital expenditures of $5.2 trillion to meet computing power demand, while spending on data centers supporting traditional IT applications is estimated at $1.5 trillion.
Over time
Elhedery underlined that the productivity benefits will only be visible after several years, as businesses will not manage to realize a positive return on their investments in the short term.
On the other hand, William Ford, Chairman and CEO of General Atlantic, agreed that investments in the artificial intelligence sector will pay off in the long term. "In the long run, new industries and applications will be created, and there will be a productivity return, but this is a 10-20 year game," he stated.
Major technology companies like Alphabet, Meta, Microsoft, and Amazon have already revised their capital expenditure estimates, and now expect the total amount to reach $380 billion this year. For its part, OpenAI, which ignited the frenzy surrounding artificial intelligence with the release of ChatGPT in November 2022, has announced infrastructure agreements worth about $1 trillion with partners such as Nvidia, Oracle, and Broadcom.
The initial investments
Ford pointed out that the massive spending in the sector shows that investors recognize the long-term impact of artificial intelligence, although he conceded that the initial phase of the industry will require significant capital. "You have to pay up front for the opportunity that will arise in the future," he said.
However, Ford warned of potential misallocation of capital, excessive valuations, and "irrational exuberance" during the early stages, while acknowledging that it is difficult to identify the winners and losers of the sector right now. "This is a broad-based technology, like railroad tracks or electricity, which had a profound impact on the economy, but it was very difficult to predict exactly how it would unfold in the early years," he concluded.
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Essentially, the CEO of HSBC, Georges Elhedery, also warned about the mismatch between the enormous investments and the expected revenues, in his speech at the Global Financial Leaders’ Investment Summit in Hong Kong.
Elhedery underlined that while the computing power for artificial intelligence is critical for its development, current revenue profiles may not justify such massive expenditures.
"Consumers are not ready to pay for it, and businesses will be cautious, as the productivity benefits will not materialize within one or two years," he specifically stated. He emphasized that these are trends that will affect the market over time, with the real benefits and increased expenses expected later than investors have anticipated.
Many warnings
Morgan Stanley estimated in July that over the next five years, global data center capacity will increase sixfold, with data centers and their equipment costing $3 trillion by the end of 2028.
Along the same lines, McKinsey noted in a report in April that by 2030, data centers capable of processing artificial intelligence workloads will require capital expenditures of $5.2 trillion to meet computing power demand, while spending on data centers supporting traditional IT applications is estimated at $1.5 trillion.
Over time
Elhedery underlined that the productivity benefits will only be visible after several years, as businesses will not manage to realize a positive return on their investments in the short term.
On the other hand, William Ford, Chairman and CEO of General Atlantic, agreed that investments in the artificial intelligence sector will pay off in the long term. "In the long run, new industries and applications will be created, and there will be a productivity return, but this is a 10-20 year game," he stated.
Major technology companies like Alphabet, Meta, Microsoft, and Amazon have already revised their capital expenditure estimates, and now expect the total amount to reach $380 billion this year. For its part, OpenAI, which ignited the frenzy surrounding artificial intelligence with the release of ChatGPT in November 2022, has announced infrastructure agreements worth about $1 trillion with partners such as Nvidia, Oracle, and Broadcom.
The initial investments
Ford pointed out that the massive spending in the sector shows that investors recognize the long-term impact of artificial intelligence, although he conceded that the initial phase of the industry will require significant capital. "You have to pay up front for the opportunity that will arise in the future," he said.
However, Ford warned of potential misallocation of capital, excessive valuations, and "irrational exuberance" during the early stages, while acknowledging that it is difficult to identify the winners and losers of the sector right now. "This is a broad-based technology, like railroad tracks or electricity, which had a profound impact on the economy, but it was very difficult to predict exactly how it would unfold in the early years," he concluded.
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