Bubble or not, here are five predictions for what AI will really deliver

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Last Thursday, the Nasdaq plunged 5.5 per cent, wiping approximately $2.5 trillion off its market value, with the turmoil spreading to Asian markets the following day. The US…

Last Thursday, the Nasdaq plunged 5.5 per cent, wiping approximately $2.5 trillion off its market value, with the turmoil spreading to Asian markets the following day. The US midterm elections had intensified concerns over potential restrictions on data-centre construction, at a time when investors were already questioning when huge AI investments would deliver equally extraordinary returns.

The numbers explain their anxiety. Gartner forecasts worldwide AI spending of $2.7 trillion this year, almost 50 per cent higher than the previous year. Such spending raises legitimate questions about market valuations, electricity demand and the sustainability of returns that have yet to fully materialise.

It is difficult to avoid comparing the present situation with the dotcom bubble, but this confuses two fundamentally different questions: whether investors are paying too much for AI companies, and whether artificial intelligence will transform the global economy. Back in the late 1990s and early 2000, the dotcom crash wiped trillions of dollars in market value, yet the internet went on transforming almost every industry. Financial bubbles can burst without the underlying technology disappearing.

Now is the time to separate the noise from the signal and adopt a three-to-five-year perspective. Stanford University estimates that the cost of running AI models at a given benchmark performance fell more than 280-fold between November 2022 and October 2024. AI is becoming dramatically cheaper, regardless of what happens to technology shares.

Perhaps the most revealing perspective comes from Anthropic, the five-year-old American AI company behind Claude, which is now preparing one of the largest stock market flotations in history, with a potential valuation of approximately $1.5 trillion. In its recently published IPO prospectus, Anthropic makes a remarkable observation: “For the first time in history, intelligence is something humans can build.”

Its argument is that the capacity to…

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