AI Is Misunderstood by the Equity Market
AI has got to be the most poorly understood Tech space of all time. Honestly. Too many people conflate “AI” with “Gen AI”. The latter is a subset of the former. Machine Learning - a subset of AI - has been widely deployed for over a decade. Ditto for Natural Language Processing (NLP) and image recognition. AWS, Google and Azure leverage these advanced automation technologies internally and have leased them via their respective cloud services offerings for over a decade. The AI revolution started over a decade ago. The Gen AI subset is new. Gen AI started to gain traction given the advances in Deep Learning (an AI subset) circa 2010. But to think that Gen AI is going to rewrite the U.S. economy in 5-10 years as equity prices imply is hogwash.
AWS as an “AI” proxy: I would venture a guess that 95% of the customer accounts associated with Amazon AWS’s $66.6 billion in 2024 YTD revenue have AI capability baked in. What percentage of those customers have deployed “AI” and in what permutation is unclear. Will Gen AI cause this AWS YTD revenue figure to double in 12 months? No, it’s not happening.
Tech budgets and “Gen AI”: Further, if Company XYZ has $100 million Technology budget in 2025, let’s say up 3% from 2024, I can promise you that any capital allocated toward Gen AI will in part take capital from elsewhere in the Technology budget. Companies will not increase Technology spend as a percentage of revenue to play games with Gen AI. Gen AI will cause another portion of the spend budget to suffer.
Headcount and “Gen AI”: Yes, I believe that GenAI can expedite the software development process today by creating blocks of code with prompting. However, when a company such as Klarna comes out and says they are holding headcount flat because AI can do all of the jobs, to this I respectively say “bullshit”. Can AI chatbots make customer service agents more productive and augment or replace agent headcount? Sure. But is AI going to replace Klarna’s entire headcount? No. Not today. Not tomorrow.