By Stephen DeAngelis
Nearly three decades ago, the world experienced what became known as the dotcom bubble. Many of the start-ups that popped up during that time raised significant amounts of capital, spent it lavishly, and went bust. Economic sociologist Adam Hayes explains, “The dotcom bubble, also known as the Internet bubble, grew out of a combination of the presence of speculative or fad-based investing, the abundance of venture capital funding for startups, and the failure of dotcoms to turn a profit. Investors poured money into Internet startups during the 1990s hoping they would one day become profitable. Many investors and venture capitalists abandoned a cautious approach for fear of not being able to cash in on the growing use of the Internet. With capital markets throwing money at the sector, start-ups were in a race to quickly get big. Companies without any proprietary technology abandoned fiscal responsibility. They spent a fortune on marketing to establish brands that would set them apart from the competition. Some start-ups spent as much as 90% of their budget on advertising.”[1] Former Fed Chair Alan Greenspan famously referred to this pattern of unwise investment as “irrational exuberance.” In the early 2000s, the bubble burst. Investors (and entrepreneurs) learned many lessons from the tech crash — not the least of which is that good business plans matter as much in the information age as they did in the industrial age.
Why the Rise of A.I. is not Another Dotcom Bubble
Over the past several years, there has been an enormous amount of hype surrounding artificial intelligence (AI). More recently, the introduction of generative AI systems — with their impressive capabilities for generating text, images, and videos — has spurred even more hype. According to McKinsey & Company analysts, “We’re in the midst of a revolution. Just as steam power, mechanized engines, and coal supply chains transformed the world in the 18th century, AI technology is currently changing the face of work, our economies, and society as we know it. To outcompete in the future, organizations and individuals alike need to get familiar fast.”[2] The question being asked by some skeptics is: Is all this hype inflating an AI bubble that will eventually burst? For example, Torsten Sløk, Chief Economist at the Apollo Global Management, insists, “The top 10 companies in the S&P 500 today are more overvalued than the top 10 companies were during the tech bubble in the mid-1990s.”[3] On the other hand, business professor David Godes doesn’t think the AI craze will lead to another burst bubble. He told journalists Laura Bratton and Britney Nguyen that “he sees excitement about AI as entirely unlike the early internet era.”[4]
The biggest difference between today’s AI hype and the dotcom bubble is the absence of irrational exuberance. Business leaders are much more skeptical today. They understand that a business case for investing in AI must be evident before they commit vital resources to the technology. In an interview conducted earlier this year, Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., compared the current enthusiasm for AI to the dotcom bubble and saw important differences. During the interview, he stated, “This is not hype. This is real. When we had the internet bubble the first time around … that was hype. This is not hype. It’s real. People are deploying it at different speeds, but it will handle a tremendous amount of stuff.”[5] What kind of stuff? Over the next decade, tech writer Shivaganesh Lokanadham predicts AI and machine learning (ML) will transform the scientific method; become a pillar of foreign policy; enable next-gen consumer experiences; address the climate change crisis; and, foster truly personalized medicine.[6]
Today’s business leaders expect to see a return on their investment in AI and they aren’t investing blindly. Some leaders are being cautious because, as journalist Christopher Mims notes, “Generative AI is a technology evolving at a rate not seen since the go-go days of the early internet itself.”[7] With so many companies offering AI-powered solutions, Mims believes the competition will be good for customers. He explains, “The beneficiary of that fierce competition will be companies large and small, which could see significant increases in the productivity of their employees. Those gains will come at a fraction of the cost of paying humans to do the same knowledge work.” Beyond improved productivity, emerging AI solutions will also permit companies to react faster to a changing business environment. As I noted in a previous article, “[Data-based decisions] are only as strong as [as a company’s] ability to act on them accurately with speed and at scale. Gartner researchers found that more than half (52%) of digitally enabled supply chain decisions ‘came too late because of the amount of time it took to conduct digital trade-off analysis,’ highlighting the growing need for more integrated, agile and autonomous capabilities. This has created space for a new solution architecture called systems of intelligence (SOI), a fit-for-purpose tool that can fundamentally understand the environment in which a business operates and then autonomously implement and adapt value chain optimization and decision-making strategies to align with evolving conditions. SOIs historically were unattainable due to technological limitations, but the emergence of next-generation technologies like generative AI and autonomous decision sciences have made them possible.”[8]
Concluding Thoughts
Is there hype surrounding all types of AI? Sure there is. Nevertheless, the type of irrational exuberance displayed during the dotcom era is not what’s driving today’s investments in AI. As Dharmesh Acharya, Director at Radixweb, concludes, “There is no question that AI has already found its way into our lives, albeit modestly. I’m struck by how today’s adaptive AI tools will soon be overshadowed by even more advanced innovations. It’s spellbinding to think that many of us are already using AI in our daily lives without even realizing it. We interact with this technology on a regular basis while shopping online, ordering food deliveries, or navigating routes. … I see a chance to use AI in ways that really matter, making things better for people everywhere. It’s an exciting time with lots of opportunities to make a difference across all sectors globally. … This thrilling journey into a new era defined by AI should be embraced — not with fear or apprehension but excitement for what can be achieved when human ingenuity meets technological prowess.”[9] Businesses that understand how AI can best advance their operations will be the winners in the years ahead. They will not only navigate the challenges of 2024 but will also unlock new levels of customer visibility, operational agility, and sustainable growth for years to come.
Footnotes
[1] Adam Hayes, “Dotcom Bubble Definition,” Investopedia, 13 June 2023.
[2] Staff, “What’s the Future of AI?” McKinsey & Company, 30 April 2024.
[3] Torsten Sløk, “The Current AI Bubble Is Bigger than the 1990s Tech Bubble,” Apollo Global Management, 25 February 2024.
[4] Laura Bratton and Britney Nguyen, “The AI craze is no dot-com bubble. Here’s why,” Quartz, 15 April 2024.
[5] Jesse Pound, “JPMorgan CEO Jamie Dimon says AI is not just hype — ‘This is real’,” CNBC, 26 February 2024.
[6] Shivaganesh Lokanadham, “AI Future: Top 5 Things to Expect in The Next 10 Years,” Analytics Insights, 9 May 2023.
[7] Christopher Mims, “Confused About AI? A Guide to Which Flavor Will Boost Productivity for Business,” The Wall Street Journal, 8 March 2024.
[8] Stephen DeAngelis, “Systems Of Intelligence: The Next Era Of CPG Value Chain Optimization And Decision-Making,” Forbes, 13 May 2024.
[9] Dharmesh Acharya, “Artificial intelligence de-hyped: Navigating through its realities and opportunities,” Fast Company, 29 January 2024.
