AI Enthusiasm is Not a Bubble and Even if it was We Wouldn’t Necessarily Know it Yet

AI is very likely to be worth more as a whole than what is currently being invested (just unevenly distributed)

In Kindergarten, my daughter learned not to spoil someone’s “mmm”. In other words, just because you don’t like something, there’s no reason to share it right now with someone else who enjoys it. There’s a lot of artificial intelligence out there right now, and of course it’s perfectly fine (often useful!) to challenge that illusion for technical reasons. Or ask questions about liability and legality. Or question business models. But to respond to the current state of affairs but just shout “BUBBLE” is not only worthless, it’s likely wrong.

During the Installation Phase of a new technology (HT Carlota Pérez) there is a bubble phase that coincides with the pre-deployment frenzy. It’s when the new thing seems to have an unlimited edge, that the “anything is possible and everything before it will be disrupted” mentality. This is largely a feature, not a bug, of our industry (and venture investing). The challenge, of course, is not to blindly anoint any fad as the New Thing and defensively shield the New Thing from any criticism. Both lead to false or endogenous new things.

Source: AVC

But from an economic point of view, we have a better understanding of what a “bubble” really means, because it is often expanded and abused beyond the classical definition.

A bubble, in an economic context, generally refers to a situation in which the price of something (an individual stock, financial asset, or even an entire sector, market, or asset class) exceeds its fundamental value by a large margin. – Investopedia

So to suggest that we are in an AI bubble is to say that the total enterprise value of AI that can/will be captured by private companies is less than the capital invested in it right now. If you really believe that, then yes, shout Bubble from the rooftops, but I’d take the other side of that bet all day.

Of course, this does not mean that all value created will accrue evenly or in the way that investors expect. Of course there will be “winners” and “losers”—perhaps even some spectacular failures—but that doesn’t mean Bubble.

When a cycle of new things runs its course, we end up with one of these three realities:

I. Total value created < Total investment capital deployed (Bubble 101. Maybe the scooters and other micro-mobility startups of the last decade are an example?)

II. Total Value Created > Total Investment Capital Deployed *But* Very Concentrated Earners (does the last 15 years of carpooling fit that bill? It can still feel like a bubble even if it’s not the classic definition)

III. Total value created >>>> Total investment capital deployed and Multiple (but not necessarily equal) winners (this is the result of truly revolutionary and disruptive technologies. SaaS and Cloud perhaps?)

From a macro perspective, I currently think this AI cycle is much more likely to be II or III than I, with a bias towards the more distributed view of III (because I’m optimistic). But my thinking about where the value will accrue is still formative and probably requires a separate blog post.

But definitely not a bubble 🙂


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AI enthusiasm is not a bubble and even if it was, we wouldn’t necessarily know it yet. While this may seem counter-intuitive, it is important to understand the potential of Artificial Intelligence (AI) and the possibilities ahead. At Ikaroa, we are unlocking this potential by delivering engineering, integration, and data-driven solutions that allow companies to develop real and applicable AI applications.

From its early beginnings, AI technology has made considerable progress with improved algorithms, more powerful hardware architecture, and access to wider data sets. AI is being adopted at a rapid rate, with many companies turning to AI solutions to automate or augment existing processes or services. This enthusiasm is pushing traditional businesses to transform, while also presenting them with an opportunity to become a leader in the era of AI.

However, in recent times, some concern has been raised over AI technology and its potential to become a bubble. What should we make of this? The truth is, it is far too early to tell. We are in the very early stages of AI development, and it is unclear what kind of advancements we can expect to see in the future. Even if the current AI enthusiasm does become a bubble, it will likely not be obvious for some time.

At Ikaroa, our team works to ensure that AI remains an ethical and sustainable technology. We develop our solutions with the utmost accuracy and integrity, making sure that companies and other stakeholders are empowered with the understanding of AI in a business application. Although we cannot be sure of the future, we remain committed to continued innovation and improvements in AI technology, so that businesses can take advantage of its capabilities and use AI in the most effective way possible.

AI has the potential to revolutionize many aspects of our lives, and its growth should not be viewed with fear or uncertainty. At Ikaroa, we are proud to be leading the charge in the development and implementation of AI technologies, and we will continue to support this technology and its applications in the years to come.


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