Is the Gen AI bubble bursting?

Is the Generative AI bubble bursting or is it just a market correction?

30% of current generative AI projects will be terminated by 2025 after the proof-of-concept phase. Many of these generative AI projects will fail due to poor data quality, insufficient risk controls, unclear added value, or rising costs.

Over the past year and a half, the immense hype surrounding Generative AI (GenAI) has captivated seasoned tech journalists, many of whom lived through previous technological booms, such as the dot-com era, the rise of cloud computing, and the advent of smartphones. In the early 2010s, the tech world fixated on big data, with Hadoop crowned as the next big thing, but its eventual collapse in 2019 led to AI becoming the latest obsession.

Although various technologies like blockchain, 5G, and self-driving cars made valiant attempts to capture attention, they failed to gain significant traction, while machine learning made steady progress. The release of OpenAI's ChatGPT in late 2022 marked a pivotal moment, with GenAI's neural network-powered advancements generating hype reminiscent of previous tech milestones. However, there are questions about whether GenAI will join the ranks of transformative innovations like mobile and cloud computing or become another overhyped trend like blockchain and 5G. A report from Goldman Sachs speculates that despite significant investments in AI infrastructure, the returns thus far have been limited to marginal efficiency gains, raising doubts about GenAI's long-term impact.

Implementing Gen AI projects can, in many cases, cost millions of dollars and bring significant ongoing expenses. For example, a Gen AI virtual assistant may cost 5 to 6.5 million USD to implement, with an annual budget per user potentially reaching 8 to 11 thousand dollars!

The current AI boom shares some characteristics with past tech bubbles, such as inflated expectations and high valuations of tech startups. Despite the hype surrounding generative AI, many leaders (not only) from the IT sector believe that this technology has the potential to transform industries and bring long-term value.

CIOs need to see more in these technologies than just digital assistants and intelligent chatbots. They should focus on the organization's strategic goals and priorities. Chief information officers must be able to clearly articulate the added value and expected return on investment (ROI) of each such project.

Sources:

1. CIO - Is the gen AI bubble due to burst? CIOs face rethink ahead, 08/2024, https://www.cio.com/article/3485333/is-the-gen-ai-bubble-due-to-burst-cios-face-rethink-ahead.html?amp=1 
2. Fortune - Generative AI is getting kicked off its pedestal — it will be painful but it's not a bad thing, 08/2024 https://fortune.com/2024/08/06/generative-ai-reality-check-tech-selloff-new-phase-less-hype-more-roi/ 
3. HPC Wire - Is the GenAI Bubble Finally Popping? 08/2024 https://www.hpcwire.com/2024/08/21/is-the-genai-bubble-finally-popping/ 
4. Forbes - Is The AI Bubble About To Burst? 08/2024 https://www.forbes.com/sites/bernardmarr/2024/08/07/is-the-ai-bubble-about-to-burst/ 
   

Images: HPC Wire, Forbes