By Eric Vandenbroeck and co-workers
AI Bubble About to Burst
The artificial
intelligence (AI) party is still in full swing, with tens of billions globally
pouring into infrastructure, startups, and attracting the best talent.
Among the headline
announcements this year: ChatGPT parent company Open AI, Softbank and Oracle
pledged to invest $500 billion (€433 billion) in AI supercomputers, Open AI and
chip giant Nvidia announced a $100 billion fund to maintain the United States'
dominance in advanced chips, while Chinese tech giants Alibaba and Tencent
hiked investments to help speed up China's ambition to lead AI by 2030.
Since ChatGPT’s debut
in November 2022, AI-related stocks have added an estimated $17.5 trillion in
market value, according to Bloomberg Intelligence, driving around 75% of the
S&P 500’s gains and propelling companies like Nvidia and Microsoft to record-breaking
valuations.
Every company would
be affected if the AI bubble were to burst, the head of Google's parent firm
Alphabet has said.
Speaking exclusively
to BBC News, Sundar Pichai said while the growth of artificial intelligence
(AI) investment had been an "extraordinary moment", there was some
"irrationality" in the current AI boom.
It comes amid fears
in Silicon Valley and beyond of a bubble, as the value of AI tech companies has
soared in recent months, and companies are spending big on the burgeoning
industry.
Asked whether Google
would be immune to the impact of the AI bubble bursting, Pichai said the tech
giant could weather that potential storm, but also issued a warning.
"I think no
company is going to be immune, including us," he said.
In a wide-ranging
exclusive interview at Google's California headquarters, he also addressed
energy needs, slowing down climate targets, UK investment, the accuracy of
his AI models, and the effect of the AI revolution on jobs.
The interview comes
as scrutiny on the state of the AI market has never been more intense.
Alphabet shares have
doubled in value in seven months to $3.5tn (£2.7tn) as markets have grown more
confident in the search giant's ability to fend off the threat from ChatGPT
owner OpenAI.
A particular focus is
Alphabet's development of specialized superchips for AI that compete with
Nvidia, run by Jensen Huang, which recently reached a world first $5tn
valuation.
As valuations rise,
some analysts have expressed skepticism about a complicated web of
$ 1.4 trillion in deals being done around OpenAI, which is expected to
have revenues this year of less than one-tenth of the planned investment.
It has raised fears
that stock markets are heading for a repeat of the dotcom boom and bust of the
late 1990s. This saw the values of early internet companies surge amid a wave
of optimism for what was then a new technology, before the bubble burst in early
2000 and many share prices collapsed.
This led to some
companies going bust, resulting in job losses. A drop in share prices can also
hit the value of people's savings, including their pension funds.
In comments echoing
those made by US Federal Reserve chairman Alan Greenspan in 1996, warning of
"irrational exuberance" in the market well ahead of the dotcom crash,
Pichai said the industry can "overshoot" in investment cycles like
this.
"We can look
back at the internet right now. There was clearly a lot of excess investment,
but none of us would question whether the internet was profound," he said.
"I
expect AI to be the same. So I think it's both rational and there are elements
of irrationality through a moment like this."
His comments follow a
warning from Jamie Dimon, the boss of US bank JP Morgan, who told the BBC last
month that investment in AI would pay off, but some of the money poured into
the industry would "probably be lost".
But Pichai said
Google's unique model of owning its own "full stack" of technologies
- from chips to YouTube data, to models and frontier science - meant it was in
a better position to ride out any AI market turbulence.
Corporations are
hesitant about AI adoption
But signs of a
hangover are getting harder to ignore.
AI usage by
corporations is slipping, spending is tightening, and the machine learning hype
has massively outpaced the profits.
Many economists think
usage concerns, barely three years into AI going mainstream, dropkick the
prevailing narrative that AI would revolutionize how businesses operate by
streamlining repetitive tasks and improving forecasting.
Google boss says
trillion-dollar AI investment boom has 'elements of irrationality'
"The vast bet on
AI infrastructure assumes surging usage, yet multiple US surveys show adoption
has actually declined since the summer," Carl-Benedikt Frey, professor of
AI & work at the UK's University of Oxford,
"Unless new,
durable use cases emerge quickly, something will give — and the bubble could
burst." The US Census Bureau, which surveys 1.2 million US companies every
fortnight, found that AI-tool usage at firms with more than 250 employees dropped
from nearly 14% in June to under 12% in August.
Garthwaite notes that
21% of US households now own individual stocks, with that number rising to 33%
including investment funds. Meanwhile, earnings growth is largely confined to
the tech giants.
“Today, outside the
top ten companies in the US, 12-month forward earnings per share growth is
close to zero,” he said.
The tech giant is
also expanding its footprint in the UK. In September, Alphabet announced it
was investing in UK artificial intelligence, committing £5bn to
infrastructure and research over the next two years.
Pichai said Alphabet
will develop "state-of-the-art" research work in the UK, including at
its key AI unit DeepMind, based in London.
For the first time,
he said Google would "over time" take a step that is being pushed for
in government to "train our models" in the UK - a move that cabinet
ministers believe would cement the UK as the number three AI "superpower"
after the US and China.
"We are
committed to investing in the UK in a pretty significant way," Pichai
said.
However, he also
warned about the "immense" energy needs of AI, which made
up 1.5% of the world's electricity consumption last year, according to the
International Energy Agency.
Pichai said action
was needed, including in the UK, to develop new sources of energy and scale up
energy infrastructure.
"You don't want
to constrain an economy based on energy, and I think that will have
consequences," he said.
He also acknowledged
that the intensive energy needs of its expanding AI venture meant there was
slippage on the company's climate targets, but insisted Alphabet still had a
target of achieving net zero by 2030 by investing in new energy technologies.
"The rate at
which we were hoping to make progress will be impacted," he said.
AI will also affect
work as we know it, Pichai said, calling it "the most profound
technology" humankind has worked on.
"We will have to
work through societal disruptions," he said, adding that it would also
"create new opportunities".
"It will evolve
and transition certain jobs, and people will need to adapt," he said.
Those who do adapt to AI "will do better".
"It doesn't
matter whether you want to be a teacher or] a doctor. All those professions
will be around, but the people who will do well in each of those professions
are people who learn how to use these tools."
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