AI needs a killer app to prove it’s not a bubble – Goldman Sachs, M.T
Analysts from Goldman Sachs and MIT recently dove into the generative artificial intelligence (AI) market to determine its short- and long-term viability for investors.
The question that looms over their research is whether the current AI market represents a bubble waiting to burst, or the next technological and industrial frontier in the “picks and shovels” phase.
Unfortunately, according to the report, the answer is not that simple. Differences in the marketplace when a bubble is about to burst – as seen when the dot-com bubble burst – and a killer app is about to spawn a technology – as seen by Satoshi Nakamoto et al. Invented cryptocurrency – may be too subtle to see until it's too late.
Is AI a bubble?
The report contains interviews with four Goldman Sachs economists and an MIT economics professor. Their predictions were split between three Goldman Sachs economists predicting the imminent arrival of AI's killer app, and the rest of the Goldman Sachs economists and an MIT professor sounding more skeptical, especially in the short term.
According to MIT professor Daron Acemoglu:
“Based on the focus and architecture of today's generative AI technology…truly transformative changes will not happen quickly, and few – if any – are likely to happen in the next 10 years.
Is an AI killer app coming?
The counterargument seems to be that current investments and corporate spending are not that radical compared to past technology market cycles.
Although it is not clear exactly what the application will be for the AI killer, the current development has led some analysts to believe that the current line of development may continue.
This is significant, as the report's analysts predict that “tech giants and others will spend more than $1 trillion on AI capital expenditures in the coming years.”
At this level of investment – mostly in infrastructure – the products and services resulting from the investment must be strong enough to support and sustain current and future funding.
According to Kash Rangan, software equity research analyst at Goldman Sachs US, the outlook is positive despite current investments.
“Absolutely the value of the dollar is a high cost today. But this capex cycle looks more promising than past cap cycles.
Goldman Sachs US internet equity research analyst Eric Sheridan expressed a similar sentiment in an interview, saying, “It's impossible to show off the capabilities of generative AI at company events or developer conferences and come away excited about its long-term potential.”
Realizing that potential, however, may come down to whether generative AI has time for iPhone mass adoption anytime soon.
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