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The still-young history of generative AI is littered with grand predictions that it would be a transformative technology.
But in recent months, skepticism has set in. The darling of generative AI, Nvidia, has bumped intounable to regain the record reached in June. The New York Times profiled Goldman Sachs’ resident AI skeptic, Research Director Jim Covello.
Enter consulting giant Bain & Company and a big new forecast: “The market for AI-related hardware and software is expected to grow between 40% and 55% annually, reaching between $780 billion and $990 billion by 2027.”
Bain’s Global Technology & Cloud Services practice chair and report author, David Crawford, told Yahoo Finance in an interview that companies of all sizes are investing in AI, not just hyperscalers.
“We were amazed at how quickly, for example, the number of companies spending more than $100 million in their annual IT budget just on AI and with large enterprises doubled,” Crawford said.
What’s critical, he added, is that it’s widespread, with small businesses doubling their spending.
“You can choose any spending type or IT budget threshold and they almost uniformly increase their spending,” Crawford said.
Bain’s forecast, combined with Micron’s forecast revised upwards of strong demand for its high-bandwidth AI-powered memory chips, gave the generative AI business some zhuzh this week.
“I don’t think we’re even close to the midpoint in terms of the AI spending cycle,” BlackRock’s Kate Moore. told Yahoo Finance.
Most investors bullish on the broader AI theme seem to agree despite some of the AI business growth numbers come back down to earth after stratospheric initial gains. And yet, this year there has been an upward trend in AI games, then a decline as traders question valuations and monetization potential. Then they go back up and the cycle starts again.
Moore compared the current period to building infrastructure in a new city.
“You can’t expect a city to thrive if it doesn’t have roads, sewers and public transportation,” she said. “And I would say the same thing. I think these hyperscalers know what they are doing. They already feel like expenses are only a small portion of their potential total return.
The stock market swings that cause motion sickness could continue, however, as Bain’s report also points out, there may be more speed bumps to come. The authors write that software companies’ revenue growth is slowing as they are under pressure to demonstrate greater AI-driven generative efficiency. Meanwhile, demand for AI could trigger a semiconductor shortage.
And, of course, there are investors who believe that all expenses are priced in. One of them is Michael Darda, chief economist and macrostrategist at Roth Capital Partners.
“I have no doubt that what is happening here is revolutionary,” he said. said in an interview. “But I also think there’s a lot of hype and if you look at these periods of innovation in the past, they’re always associated with what look like bubbles or mini-bubbles, if you want to use that word . Typically, what we don’t see is simply stabilization at historically high or record valuation levels and stagnation for an indefinite period of time. Usually things start to shift a bit.
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