With AI investment at full speed, does ROI matter?
In a time of great AI spending, does ROI matter?
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This is a question every technology-related company should be asking themselves. The right answer can save businesses a lot of grief by setting them up for success.
In the year 1 trillion dollars is planned On the cost of artificial intelligence in the coming years. But not all costs are equal. To give you an idea of how much economic value could be created by AI, let’s consider chips. Assuming AI vendors need 50-60% gross margins, if they spend $150 billion on chips alone, they need to sell $500-600 billion in services. Those buyers need those AI services to create $1 trillion in economic value.
It may seem like a long way from here to ROI, but the math is similar to what the US faced in the early days of the Internet. Today, the argument that the US is investing too much in AI plays out across industries where your company’s survival depends on it.
I divide companies into three categories:
For hyperscalers—tech’s biggest cloud companies like Microsoft, Google, Amazon, and Meta—there are two aspects to consider. AI can pave the way for greater success and relevance in the future. Or AI may create a new level of innovation that disrupts their core business. Either way, these companies have good reason to invest heavily.
Without knowing where the payoff will come from or what the “killer app” will be, Big Tech must explore all avenues. There will be many unnecessary investments, a few dead ends and even some lucky results, but this will take years to complete.
Fortunately for these companies, ROI won’t be an immediate push as long as their overall financial performance is strong and they’re generating enough cash to make significant AI investments.
Companies that make chips, servers, or data centers need to invest in capacity. Their priority is meeting demand, despite overestimation and profit-making. At the time of major AI investment, it is important to have adequate AI infrastructure in place, otherwise your customers will go elsewhere.
It is a game of supply and demand. Some companies can overextend, and others will fail. If a few fall, there will be consolidation. Assuming there is continued demand, valuations will return to market levels.
