Who is seeing financial gains from the enormous investment in artificial intelligence? Businesses outside the technology sector may not be sharing in the benefits.
Here’s what to know
Apollo Global Management chief economist Torsten Slok says businesses outside technology are seeing “zero financial payoff.”
Slok compared the seven large technology companies known as the Magnificent Seven with the other 493 companies in the S&P 500, according to Futurism.
“Revenue per worker is rising for the Mag 7 but is flat for the S&P 493,” Slok wrote in a note. “Profit margins are rising for the Mag 7 but are flat for the S&P 493.”
Slok added that “there are still no signs of AI boosting productivity growth.” His assessment does not suggest that every individual AI project has failed, but it challenges expectations that the technology is already delivering widespread financial benefits.
More background
CoreWeave, a major cloud computing provider, has accumulated debts exceeding $50 billion while rapidly spending its cash reserves.
Enormous sums continue to flow into the sector, even though some providers may not survive on their own. SpaceX CEO Elon Musk has warned against investing in AI cloud computing companies, predicting “guppy-level death and consolidation,” according to Futurism.
Beyond the financial risks, expanding AI infrastructure can strain electricity and water supplies. The data centers running AI models require power and cooling, which can involve substantial water use.
While AI could help optimize clean energy systems, growing computing demand can also strain the energy grid and potentially increase energy bills.
What’s being done?
Futurism also noted that the most advanced AI models are losing business to cheaper tools.
“Mainstream corporate America is pulling back and starting to view token spending not as a source of growth but as a cost center that weighs on margins,” Slok wrote.
Despite Goldman Sachs’ announcement of a $500 million AI push, its chief executive, David Solomon, told investors that “there’s very little that we do where we need frontier models,” Fortune reported.
For Solomon, supporting a business with existing, basic tools is a separate matter from the frontier model developments attracting so much publicity.
“The bottom line is that the AI story will be decided in the S&P 493, not the Mag 7, and so far, there is no evidence that revenue growth or margins are improving outside the tech sector,” Slok concluded his note.
Where can I learn more?
The question of who benefits from AI also matters to hospitals, small businesses, and workers, as these stories show.
Source: finance.yahoo.com
