Despite the hype surrounding artificial intelligence in tech hubs like San Francisco, the economic impact of the new technology has been disappointing so far.
According to a recent report by The Economist, the five biggest tech companies—Alphabet, Amazon, Apple, Meta, and Microsoft—have allocated an estimated $400 billion to AI-related capital expenditures and R&D this year.
However, the expected transformation of the global economy remains largely theoretical.
Expectations and reality
According to the Economist, investors have significantly increased the market value of the tech giants, adding $2 trillion over the past year, and annual revenues are actually expected to reach an additional $300-400 billion.
That’s roughly the same as another year of Apple sales. Still, even the most optimistic analysts believe Microsoft will only generate about $10 billion in AI-related sales this year. Outside the West Coast, the impact of AI is minimal, the paper says.
Adoption rates and challenges
Genuine surveys suggest that AI is being used on a large scale. A recent McKinsey survey found that nearly two-thirds of respondents said their companies regularly use AI, nearly double the number from the previous year.
While a report by Microsoft and LinkedIn indicated that 75% of “knowledge workers” worldwide use artificial intelligence, according to the Economist.
However, the US Census Bureau reported that only 5% of companies had used AI in the past two weeks. In Canada, only 6% of companies had used AI in the past 12 months, and in the UK, 20% of companies had adopted AI by March.
The newspaper notes that concerns about data security, biased algorithms, and the rapid pace of AI development are slowing its rollout.
McDonald’s recently halted its AI-powered ordering experiment due to major errors.
According to one consultant, many companies are suffering from “experimentitis,” where too many small AI projects make it difficult to identify effective investments.
Limited applications
The Economist says companies are using AI primarily for narrow tasks like streamlining customer service and marketing. For example, telecom giant Verizon is using AI to make personalized plan recommendations.
Despite these efforts, many see the experiments as unimpressive. The companies tracked by Goldman Sachs’s index of stock markets poised to benefit from AI adoption have underperformed the broader market, according to the Economist.
Employment and Productivity
The impact of artificial intelligence on employment has been less than expected, according to the newspaper. Although Kristalina Georgieva, the head of the International Monetary Fund, warned that artificial intelligence could hit the labor market like a “tsunami,” the unemployment rate across the first world remains below 5%. Wage growth is strong, which contradicts fears that workers’ bargaining power is declining.
Moreover, macroeconomic data show no increase in productivity, and in America’s AI hotspot, output per hour is below its pre-2020 trend. Business investment in information processing equipment and software is growing at only 5% per year, well below the long-term average.
future prospects
Most technological waves, from the tractor to the personal computer, have taken a long time to penetrate economies, the paper says.
Assuming that Big Tech’s AI revenues grow at 20% per year, investors expect that nearly all of Big Tech’s AI profits will come after 2032.
If an AI breakthrough eventually occurs, the stock prices of AI users will skyrocket.
However, if concerns about AI persist, the current high valuations and large capital expenditure plans for big tech may seem expensive and ineffective, the newspaper added.
