The Great AI Boom Ahead

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The Great AI Boom Ahead

Because the real-world experience of Boomers, Xers, and especially Millennials is limited to the speculative frenzy and transition stages of a Techno-Economic Revolution, we reflexive see every boom developing into a bubble which ultimately bursts with major collateral damage.  But not all bubbles have negative consequences for the economy like we saw during the housing bubble, or even the dot-com bubble. 

And an objective analysis indicates that an “AI bubble” is more likely to generate enormous value than it is to wreak havoc.

Today, investment in artificial intelligence is rising rapidly, especially in China and the United States.  AI-related opportunities and threats are just becoming visible to most decision-makers.  And many of these are likely to be mirages.  Yet, “getting this right” is crucial for today’s investors, managers, and policymakers. 

That raise two key questions

  1. Are we heading toward an AI bubble?  And
  2. If so, how bad would it be if the bubble were to burst?

Having studied AI intensely for the past two years, experts at the Boston Consulting Group say, “yes, today’s fascination with “all things AI” has most of the trappings of a financial bubble.”

“But unlike the housing bubble,” BCG argues that, “the effects of a bursting AI bubble wouldn’t cause great harm.  Indeed, this bubble has far more in common with the bubble, which helped finance the internet backbone, than with the housing bubble, which wreaked havoc on the household finances of millions of homeowners.”

Consider the facts.

Bubbles occur when the market value of assets decouple from their intrinsic value and expectations of rising valuations generate investor demand.  In typical bubbles, both the volume and valuation of investments expand rapidly.  We are seeing both trends in AI.

From 2013 through 2018, both the number and size of AI deals soared.  Overall, investments rose by 75% annually.  While the Chinese government and the U.S. Department of Defense have played a big role, private investment in all regions has also surged.  As a result, AI investments are rising, both in absolute terms and relative to other categories of technology.  For example, between 2012 and mid-2018, investors poured $110 billion into 9,800 rounds of financing for AI startups.  This dwarfed the $12 billion invested in 1,500 blockchain startups during that time period, as well as the $700 million invested in 60 quantum computing startups...

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