What if AI is the next dot-com bubble?
When asked whether companies are worried about AI infrastructure costs, overspending, or potential profit erosion, the response is a firm 'yes.' Developing AI infrastructure is a long-term commitment, especially compared to the typical short attention span of VC-funded initiatives, which is around 12 to 18 months. However, companies are well aware of the need for long-term investment plans. The quick evolution of AI technology has motivated businesses to prepare for immediate integration of AI in their operations. Still, there is a pressing need to develop a coherent long-term strategy around AI infrastructure.
When asked whether long-term investment in AI infrastructure is sustainable, the response is 'not right now.' The economic downturn, alongside prevailing bubble fears, has raised questions regarding the infrastructure of AI investments. Areas of concern include the rate of operational cash flow, investment return periods, and the long-term operational benefits of AI investments. Balancing these factors is pivotal in pursuing sustainable investment in AI infrastructure. With the current economic downtime, brittle cash flow, and narrowly focused AI investments, companies must mitigate risks to attract long-term, less volatile, and sustainable investments in AI infrastructure.
The concerns related to overcapacity are understandable, however, what is going on is a large scale buildout to facilitate the industrialisation of AI. The issue, he said, is not whether there is demand for AI, but whether we are preparing fast enough for what is on the horizon.
Miceli has mentioned the possibility of a downturn, however, the demand for AI computing power will justify the current level of investment for the foreseeable future. "There is a race to develop AI and build the capability behind it. Demand, we believe, will eventually meet supply as the applications develop," he said.
Different Shades of Caution
There are various different opinions on whether AI's growth is hype, or actually healthy growth.
As mentioned in a Reuters article, during the same conference, GIC Chief Investment Officer Bryan Yeo stated that early stage AI venture valuations are “huge” as many of these startups have “modest revenues.” Yeo indicated that while some firms may justify their valuations, others are unlikely to deliver returns that match expectations.
Amazon's founder agreed, stating that during these periods of excitement, investors find it difficult to separate good ideas from the bad.