As AI comes back to earth, questions swirl about industry overpromise

On April 1, comedian Jon Stewart let loose on AI, calling out the tech industry for “false promises” about the technology. And no, it wasn’t an April Fool’s joke.

The Daily Show host isn’t the only one asking questions. After over a year of relentless hype and excitement, AI is coming back down to earth. In late January, AI companies lost $190 billion in market cap after weak quarterly reports from Alphabet, Microsoft, and Advanced Micro Devices.

Value judgment. New research from The Information indicates that AI startup valuations are dropping. According to reporter Stephanie Palazzolo, AI-related startups—ones that offer large language model services—have seen investor revenue predictions drop.

“On average, investors valued these companies at 83 times their projected sales—usually calculated as annualized revenue, or 12 times their monthly revenue at the time of the investment,” Palazzolo wrote. “In comparison, three of the four AI startups that have raised money since then have done so at half of the revenue multiple of the original eight, on average.”

Looking up. Not every startup reviewed by The Information saw projections decline. The business of AI is booming. But companies aren’t pulling in the same investment capital as they were earlier, a strong indication that the promise of the technology is running up against reality.

As IT Brew has reported, AI is especially useful to internal tech teams as a tool to assist in a number of software tasks. But the tech has a dark side; a Microsoft engineer recently blew the whistle on image generation from his company’s Copilot Designer, which creates pictures that are outside supposed parameters.

Still, AI is an important part of the tech economy. Despite some hiccups in tech jobs in recent months, AI has been a bright spot—IT jobs overall declined by 31% from December 2022 to January 2024, but AI jobs were up 42% in the same period.