Artificial Intelligence Reality Check: Balancing Hype and Potential

AI will radically change the IT market, channel, and world, but it’s not going to happen overnight despite the massive exuberance around the technology.

By Larry Walsh

Yesterday, the Dow Jones Industrial Average experienced a significant drop, plunging more than 500 points. This decline followed a period of record-setting highs, fueled by an invigorated economy and a resurgent tech sector driven largely by artificial intelligence mania. The immediate trigger for the Dow Jones’ one-day decline was an unexpectedly high inflation rate for January, signaling underlying market uncertainties.

A headline from MarketWatch is particularly telling: “Arm’s Stock Suffers Its Worst Day on Record as AI Euphoria Cools.” This highlights the situation of Arm, a specialist in chip design and one of the many companies banking heavily on AI’s potential. The general sentiment is clear: AI is seen as a beacon of future prosperity, with immense expectations for driving new revenue and growth. However, every setback in this arena prompts investors to reassess the value of AI and the companies behind it.

While investor concerns are understandable, their disappointment, particularly with Arm, might be misdirected. Companies like Arm, Nvidia, AMD, and Intel are at the forefront of artificial intelligence’s future, thanks to their advanced semiconductor designs vital for artificial intelligence systems. Intel has even coined a term for this new era of semiconductors: “Siliconomy.” The challenge arises from artificial intelligence’s popularity, leading to a trend known as “AI washing” — brands indiscriminately attaching artificial intelligence to their products and services.

Artificial intelligence’s omnipresence is evident in every discussion at Channelnomics. The technology, along with related fields like machine learning and large language models, has been a hot topic for good reason. Artificial intelligence has a long history, dating back to the 1950s, and has been a part of hardware and software technology for the past two decades. The real turning point was last year’s unveiling of ChatGPT by OpenAI, which brought AI’s potential into the limelight for the average person in their daily professional and personal lives.

Now, artificial intelligence is ingrained in various facets of our lives. Nvidia is rolling out chips that enable artificial intelligence chatbots to operate directly on PCs. Leading tech companies such as Dell, Lenovo, and HP are gearing up to introduce the first AI-capable PCs later this year. Microsoft’s fortunes are soaring with the release of its artificial intelligence tool, Copilot. Even Samsung’s latest Galaxy S24 smartphone boasts artificial intelligence capabilities. The message is clear: Lacking AI in your product lineup seems almost outdated.

Economists project that by 2030, AI will contribute approximately $1 trillion to the U.S. GDP, revolutionizing processes and automation. Sam Altman, the founder and CEO of OpenAI and a prominent figure in the AI revolution, is ambitiously seeking $7 trillion from investors and sovereign funds globally. This funding is aimed at building a vast artificial intelligence infrastructure that can fulfill the promises of general artificial intelligence, the next evolution of this technology.

To put these projections in perspective, let’s consider some market data. At the Global Technology Distribution Council (GTDC) Summit, market analyst firm IDC presented its 2024 forecast, heavily focused on artificial intelligence trends. This year, artificial intelligence is expected to generate just over $40 billion globally. By 2027, this figure is anticipated to exceed $150 billion, translating to a compound annual growth rate (CAGR) of about 55%.

While these numbers are impressive, they pale in comparison to Altman’s $7 trillion vision for artificial intelligence. Achieving a return on such an investment — surpassing the combined GDPs of Italy, Mexico, South Korea, and Poland — would take more than a decade, assuming a total monopoly in the AI market. This is a highly unlikely scenario given the numerous competitors vying for a share of the artificial intelligence market.

The current frenzy around artificial intelligence is reminiscent of past tech trends. It echoes the dot-com era of the late 1990s and early 2000s, when simply adding “.com” to a company’s name could inflate its value. It also mirrors the early days of the Internet of Things, which Cisco once pegged as a $19 trillion market opportunity. As of 2023, IoT’s attributable revenue stands at $663 billion, encompassing a broad range of conventional hardware and software.

At Channelnomics, we recognize the significant impact artificial intelligence will have on the technology market, the channel, and everyday life. However, we believe that artificial intelligence’s tangible effects on the market and channel will not be fully realized until around 2026 or 2027. This delay is due to the time needed for partners to develop meaningful practices and for customers to effectively integrate and leverage the technology.

As we continue our work on various AI projects, Channelnomics is preparing to release new research exploring artificial intelligence from both channel and end-user perspectives. Our current advice is to maintain a balanced view of artificial intelligence. It’s an important area for attention and investment, but the journey from today’s capabilities to the promised AI-driven future is a long one.

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