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A hot potato: Concerns are growing about AI monetization, even as the largest technology companies continue to pour billions into the seemingly bottomless pit of generative algorithms. Will the AI bubble burst before it achieves world domination through uncanny hallucinations and outrageous predictions?
IT spending on AI services and algorithmic training continues to grow, even though the path to monetization is proving longer than expected. According to the latest analysis from S&P Global, cloud giants are "heavily" investing in AI, while traditional computer markets remain weak. The firm states that when considering combined capital spending, Microsoft, Alphabet, and Meta's AI investments are up 60 percent year-over-year.
The three major players in the cloud business are experiencing higher growth rates, and they are projected to continue growing by 20 percent or more in 2025. Growth trends have improved over the past two quarters due to "less defensive" enterprise IT budgets, S&P notes. While most of the low-hanging fruit in the AI business has already been picked, cloud service providers can still benefit from on-premise to cloud migrations and the rise of new cloud-focused workloads.
AI workloads are coming online, and the technology is gaining traction. However, CSPs are still spending significantly more than they are earning from AI algorithms. As a result, S&P predicts that "the path to AI monetization and maturity will be longer than previously expected." Google/Alphabet CEO Sundar Pichai recently emphasized that the risk of underinvesting in AI is much greater than the risk of overinvesting, while major AI companies like OpenAI require substantial funding just to stay operational.
Companies aren't exactly adopting AI en masse, S&P concedes. Many potential CSP customers are still trying to figure out how to integrate the technology into their businesses, and the proliferation of generative AI services and models isn't helping the situation. S&P predicts that AI spending will continue to grow by more than 20 percent at least until 2028.
Meanwhile, global IT spending in 2024 is expected to remain at an eight percent growth rate. Enterprise hardware and "non-AI" tech sectors are experiencing weaker growth trends, with a gradual recovery anticipated in the latter half of the year. Enterprises are delaying long-term projects but continuing with cloud transitions. According to S&P, management teams are more confident about the macroeconomic environment compared to six months ago.
S&P has also assigned an "A-" credit rating to Intel, following a weaker-than-expected quarter marked by missed expectations and a revenue cut. Intel will face a "challenging" second half of the year as its customers work to reduce inventory. The growing segment will be the "AI PC" market, with more than 40 million units expected to be shipped by the end of 2024 and a cumulative total of 100 million units by the end of 2025.