How Our AI-Reliance Lingers in the Shadows
AI technology, said to be the most transformative advancement in history, has led us to live in an AI bubble in the 21st Century for numerous reasons we are yet to uncover.
In 2024, AI stocks reached their peak, driven by investor optimism. With the fast rise of key AI technology shares, this prospective growth trajectory has many skeptics worried about an overheating market.
The Bull Market vs. Bubble Debate
To understand what’s going on now with the stocks of AI companies, one needs to know the difference between a bull market and a bubble. It’s easy to identify bubbles ex post that is, once they pop but it is very hard to do that in real-time.
It starts when investors identify a promising trend, like the advent of the internet or the growth in the housing market. This produces, at first, quite a rational investment. With time, however, excitement can turn irrational, and stock prices go up just because of fear of missing out (FOMO) rather than due to some realistic expectations of future earnings.
This pattern makes it hard to know how to separate rational long-term investments in AI from irrational excitement. Though AI does have huge potential value to create, some market behaviors might just reflect overhyped expectations.
How AI is Expected to Create Value
The main question here, and on everyone’s minds is, how will these companies monetize AI services to generate profit? AI technology promises smooth business operations, consequentially cutting labor costs and offering many new data-driven products and services.
One can ride the AI boom through the leading chipmakers, such as Nvidia Corp. Any business using AI will constantly need to upgrade its hardware to stay competitive if they want to maintain demand for products, ensuring they and their Nvidia products value remain intact.
AI service providers such as Microsoft Corp. (MSFT), Alphabet Inc. (GOOG, GOOGL), and Meta Platforms Inc. (META) are investing heavily in AI infrastructure. The same type of investments, also occurring now, echo what happened with the cloud service providers back in the early 2000s when the groundwork was laid for future profitability.
Another giant that marked its presence is Amazon Web Services with $24.6 billion in operating income for 2023, while Microsoft’s Intelligent Cloud segment came in at $87.9 billion.
The Greater Good of AI
AI significantly accelerates academic progress for students, making it difficult to imagine completing high school and a double major without its assistance. Before the advent of AI, research required extensive reading and starting from scratch. Educational institutions did not face today’s level of concerns regarding academic dishonesty. The most notable improvements in workflow have been observed in large technology companies. Big tech companies didn’t just depend on AI; they used it to create better products and services for the world, which is why AI stocks have risen. AI has been embedded in most products of these companies, such as the iPhone 16, Galaxy S24, and many more.
Big tech companies have been AI-dependent ever since the spike in AI development, which led us to live in an AI bubble. How could anyone expect us not to be AI-dependent anymore?
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