Bubble or no bubble, AI continues to define market

Every generation throws a hero up the charts—and in the 2020s, that hero is AI.

Spending on AI has dominated the earnings season. Amazon reported that demand from large corporate AWS clients has driven the company to put money into all aspects of AI, including energy to power compute, CEO Andrew Jassy told investors on a recent earnings call.

“We need to have the requisite capacity, and we’ve been focused on accelerating capacity the last several months, adding more than 3.8 gigawatts of power in the past 12 months, more than any other cloud provider,” Jassy said. “To put that into perspective, we’re now double the power capacity that AWS was in 2022, and we’re on track to double again by 2027. In the last quarter of this year alone, we expect to add at least another 1 gigawatt of power.”

Big changes. As Melissa Ruzzi, AppOmni director of AI, told IT Brew, the potential of AI has opened a world of possibilities for tech companies. Expansion of opportunity for vendors could mean there’s less danger of a bubble, Ruzzi said, and it’s encouraging to see different aspects of the technology taking precedent.

“It’s not a bubble in the sense of fear that everyone has, it’s more we’re going to see those companies maturing and shaping and changing what they’re offering,” Ruzzi said. “The buzz from generative AI is going to change—that’s what I’m hoping to see, that we see more generative AI on top of other things, and not as the one solution that’s going to fix all your problems.”

Google is also seeing large-scale adoption of AI from corporate cloud customers and putting significant resources into the technology. CEO Sundar Pichai told investors at the company’s latest earnings call that AI helped drive a $100 billion quarter: “Five years ago, our quarterly revenue was at $50 billion. Our revenue number has doubled since then, and we are firmly in the generative AI era.”

Get it going. Some investors are hedging their bets, as Benzinga reported. Hedge fund manager Michael Burry, famous for shorting the housing market in 2008 (and being played by Christian Bale in the movie The Big Short) claims that the AI market has become a bubble, and that it’s time to take a step back. And the Shiller PE ratio, which measures cyclically adjusted price-to-earnings, is at a higher level than it has been since just before the 1999 dot-com crash.

Caution. There’s ample reason to be careful, economist Paul Krugman wrote in his newsletter in October. Detailing the ways the current AI boom mirrors the telecom bubble of the 1990s, Krugman noted that “the vast sums of money being committed to AI show that most investors have convinced themselves that ‘this time is different.’”

“Like Ponzi’s original scheme, natural Ponzi schemes are sustained by narratives about how investing in this particular asset will somehow be extremely profitable,” Krugman added.

Ruzzi noted that AI has been promoted in ways that led to unrealistic, outsize assumptions about the technology’s power and capabilities—and that’s the kind of thing that can lead to errors.

“A lot of companies are trying to ride the wave and not stay behind,” Ruzzi said. “People have much, much higher expectations, or dreams, and still, a lot of people believe GenAI is just pure magic and can do everything.”