AI is already changing the world in many ways. Yet we are just at the start of what is likely to be a paradigm shift in ways of working globally.
The really big changes are yet to come, but the speed with which AI is being developed means that this is likely to happen sooner rather than later. Those countries that can’t or won’t embrace AI are condemned to be left behind.
This is all very well, but AI is going to bring all sorts of societal change with it. Until now, much of AI has been involved with fairly ephemeral applications such as ChatGPT and Perplexity, but in the not-too-distant future we can expect to see much more in the way of autonomous vehicles, for example, as well as delicate medical procedures.
All the while humanoid robots are becoming ever more lifelike. Many knowledge-based jobs will be usurped by AI in future, though those people who understand and embrace the new technology are likely to prosper.
Goldman Sachs has estimated that 300-million knowledge-based jobs could become redundant globally in the next few years as a direct result of AI.
In the first instance massive new electrical infrastructure will need to be constructed, and it’s far from clear who will pay for this, how much it will cost and what the return on capital will be on such huge development.
Sam Altman of OpenAI has committed $1.25-trillion in AI-related capital expenditure over the next decade. This from a company that to date has never turned a profit. This will require the equivalent of at least 25 and perhaps even as many as 35 extra new nuclear power plants in the US. It should be noted that the US does not have a national electricity grid, and electrical capabilities differ significantly depending on region and state.
Power outages and voltage reductions, or “brownouts”, are common in certain states. Apart from new generation capacity, massive new investment in transmission lines and data centres will also be required for AI expansion.
While the green lobby may be thrilled at the prospect of massive new capex being directed towards electrical infrastructure, a reality check reveals that new baseload power will probably need to be delivered by nuclear or gas rather than solar or wind, for the simple reason that this new technology, with massive data centres, cannot rely extensively on intermittent power sources.
Interestingly, in Altman’s grand new vision, entitled Stargate Project, he is already looking at the possibility of constructing certain data centres in energy-rich places such as the United Arab Emirates and Norway.
From an investment perspective, there is a lot of chatter around whether the elevated levels of technology stocks and certain indices constitute a bubble and, if so, when the bubble may be likely to burst. Fundamentally, there is little doubt that companies such as Quantum AI, with no prospect of making any profits in the foreseeable future, are in bubble territory.
The pendulum can swing either way. If the electrical infrastructure required to make Altman’s “field of dreams” a reality is forthcoming and at a reasonable cost, then the optimists will be correct. However, there is a very real possibility that this massive level of new capex won’t be forthcoming on anything but an exceptionally long timeframe, in which case the bubble could easily burst.
These sentiments were echoed in an interview by Alphabet (Google’s parent company) CEO Sundar Pichai with the BBC, in which he talked about “elements of irrationality” in the US equity market, a none-too-oblique reference to former Federal Reserve chair Alan Greenspan’s warning of “irrational exuberance” during the so-called dot-com bubble of the late 1990s.
Though Google appears to be well placed to withstand the bursting of an AI bubble, Pichai reckons that no tech firm would be immune to the effects of such a burst. Interestingly, Warren Buffett’s Berkshire Hathaway recently bought $4bn worth of Alphabet’s voting shares, which have already risen by 25% in the past month.
• Gilmour is an investment analyst.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.