Beware of the big promises of AI – we’ve been here before

AI hype is everywhere, but we’ve been here before. Ian Whittaker prescribes a healthy dose of scepticism in today’s Notebook

Don’t believe the AI hype

If there is any theme that has dominated the media and tech landscape in 2024, it is artificial intelligence (AI). Everyone has an opinion on it (including myself). Many of claim it will transform the world and our everyday living. But will it? 

One thing probably to state straight off the bat is that AI is not new: in fact, the “Turing test” (the idea of a machine exhibiting human intelligence) was developed in 1949 by British computer scientist Alan Turing. Nor indeed is the current wave of enthusiasm for AI new. There have been two previous bursts of interest in AI, like today’s and with similar claims being made about the transformational impact of the technology. Both ended in the so-called “AI Winters” – one in the 1960s that collapsed from 1974 onwards due to the OPEC oil crisis and the effect on the world economy and the second in the late 1980s post the problems in the Japanese economy.  

That gives one clue as to why the idea that AI’s rise will “inevitably” lead to transformation may be misplaced. Developing AI does not come cheap. In fact, funding in AI in 2022 dropped off significantly as the ultra-low-interest rate policies that had encouraged investments reversed. This time round, AI is being funded by the cash-rich Big Tech companies, not only venture capital and private equity, which may negate this issue. But does this mean it will inevitably be a success? 

There is no doubt that, in several areas, AI will be transformational. For example, in science, particularly in areas such as medicine and design, AI’s ability to process huge amounts of information and to connect previously unseen patterns should drive very significant benefits. On a more cynical level, firms may also use AI to drive through job cuts and / or reductions in hiring as AI takes over certain human-interaction roles (think chatbots), not because it leads to better service or consumer outcomes but because it is more cost effective. 

However, for those who claim AI may transform everything, there are two considerations to ponder. 

The first is that AI – now – looks more like a necessary cost to stay in the game rather than a major revenue generator. The conference calls of all the major tech companies in their third quarter results made it clear that the costs of investment in AI will only increase yet the benefits when it comes to the revenue line are yet to materialise. That may change but there is no sign yet. 

The second is the experience of the US military, which has been in the AI game far longer than its civilian counterparts. The so-called revolutions in military affairs always look to make the battlefield more effective and less costly in terms of soldiers’ lives lost. However, the US military is pulling back from its use of AI overall as it becomes aware that the technology not only cannot handle all situations but may cause more harm than good. 

So beware of the big claims made about AI. A dose of scepticism can sometimes be healthy. 

Do not ignore the Trump trade

One of the key themes I state to my clients is never ignore, or underestimate, the impact of what happens in the general economic and political environment for your industry. That has been recognised in sectors such as mining for decades. Yet the re-election of Donald Trump means that the media and tech sectors will need to get up to speed fast. Trust in the traditional media is at historic lows amongst Republican and independent voters and that will impact how the Trump administration deals with these companies.

It is hard to see a Trump administration being in favour of broadcast networks consolidating, given Trump’s view that “mainstream media” is hostile. Similarly, if Matt Gaetz – a Big Tech sceptic – is confirmed as attorney general, the major tech companies are likely to come under even more intensity. It can be comforting to ignore the outside world but it has a nasty habit of making its presence felt, and I feel this is the outcome that will await many media and tech companies. 

Quote of the day

“We need super high-IQ small-government revolutionaries willing to work 80+ hours per week on unglamorous cost-cutting.”

Elon Musk calls for (maybe) unpaid volunteers to help cut US government waste

Disney turns a corner

Disney’s shares rose six per cent on the back of positively received results, which is not something Disney has been used to in the past few quarters at least. Investors warmed to the theme that streaming has turned the corner and that the Magic Mouse will see accelerated earnings growth. Yet there are still many questions that need to be answered for Disney. Its plans for increased streaming profitability rest on the ability to pass through price increases, which may be more difficult in the current consumer environment. It faces challenges in its traditional TV networks. And then there is the question of who will succeed Bob Iger as CEO. The Mouse may be less timid than previously but there is a long way to go before it starts to roar. 

 Ian Whittaker is the founder of Liberty Sky Advisors and twice City A.M. analyst of the year