AI: Boom, bubble, bust?

By Owen Cotterill

I heard a story this week about a San Franciscan businesswoman who announced plans for a new AI software program. Within weeks, the value of her “company” skyrocketed, and she raised $2 billion from private investors. She had no office, no employees, and hadn’t written a single line of code.

I’m not sure if it’s a true story. It sounds unbelievable, but it was told by an esteemed

university professor. Either way, it doesn’t really matter. The fact that I don’t doubt it

says a lot about how insane the world of AI has become. AI has exploded faster than any technology in history, advancing from the realm of science fiction into everyday life in a matter of decades. But like every boom, it can’t last forever.

The AI Boom

The term artificial intelligence (AI) was coined way back in 1956 but only recently

became a household name. For a long time, AI ambitions ran ahead of technology’s

abilities. By the 2010s, tech was catching up. Since then, things have moved quickly. The world was introduced to consumer AI in late-2022 with the release of ChatGPT-3.5. Within a week, it reached a million users. Within a year, around a 100 million. Today, over 700 million people use ChatGPT, now on version 5, each week. Alongside “Chat”, thousands upon thousands of AI products and features have emerged. You can now create images, videos, songs, art – just about anything you can imagine – with a simple text prompt. It’s also being integrated into existing systems. Every software has a new AI feature, every company, a new AI product. Yesterday I saw an ad for an AI massage chair… what does that even mean? Fueled by trillions of dollars in spending, AI has been woven into nearly every aspect of modern life. But after years of exponential growth, momentum seems to be fading.

The AI Bubble

There’s growing concern about an AI bubble. An investment bubble happens when asset prices, in this case the price of tech stocks, rise rapidly. Driven by hype and speculation, prices climb so high that they no longer reflect the real value of assets. Eventually, some investors wise up and begin selling. The bubble pops, others follow suit, and asset prices come crashing down. There are some parallels between today’s stock market and the Dotcom Bubble of the early 2000s. During the rise of internet in the late ‘90s, a wave of new digital companies emerged, raising large amounts of money, often without revenue, profits, or even finished products. Afraid of missing out on the boom, investors abandoned caution, betting on future promises rather than present reality. Sound familiar?

The Bank of England, the International Monetary Fund, and prominent financial leaders

are warning that AI enthusiasm has inflated tech stocks to unsustainable levels. Stock

prices, which reached record highs this week, haven’t been this overvalued since the

early 2000s. Growth is being driven by a small number of tech giants. These companies are heavily invested in AI and have become entangled in a web of complex financial dealings. If confidence in the future of AI drops, these stocks could all come crashing down.

Concerningly, demand for AI products could be on shaky ground. A recent MIT study

found that 95% of companies using AI have seen zero return on their investment. Though AI adoption continues, that could change quickly if AI continues to fall short of the hype. Ordinary people are also having second thoughts about AI. Sure, the Instagram Reels of animals flipping the bird are fun, but many are realizing that the benefits might not outweigh the risks. Six in ten Canadians now believe that the development of AI should be slowed down (49%) or abandoned altogether (13%). An even larger proportion (85%) think that AI should be regulated to ensure safe and ethical use. Government regulation could complicate things for AI companies at a very bad time.

The AI Bust?

So, is this the end for AI? Almost certainly not. It's still a transformational technology with the potential to fundamentally change how we live and work. But it might be in for a bit of a reality check. The bad news? If AI comes crashing back to earth, it will crush an awful lot of people. Investors would lose money, some tech workers, like our San Francisco entrepreneur, might be out of a job, and ordinary people tied to the market through investments and pensions could see their hard-earned savings shrink.

The good news? The AI industry will bounce back, building upon the foundations laid

during the boom. Slowing down might also mean that companies stop producing stupid

stuff nobody wants and start focusing on tools that actually benefit society. Even better,

it would mean that your job is safe (for now) and indistinguishable deep fakes are still a

nightmare for another day.

Image: Wikipedia Creative Commons