Generative AI: Not Worth Your Money (Yet)
Wednesday, Nov 6, 2024 1:00 pm ET
1min read Generative AI has been the talk of the town, with billions pouring into the technology. However, the question remains: is it worth your investment? As an experienced investment consultant, I believe it's crucial to approach AI investments with caution, as the returns are still uncertain. Let's explore why generative AI might not be the best use of your money at this stage.
1. **Lack of Clear Use Cases**: Despite the hype, generative AI's practical applications remain largely untested. The market has yet to see tangible returns on the $1 trillion invested in AI infrastructure. This makes it challenging to predict future returns, as seen in the contrasting views of Goldman Sachs' portfolio managers (Cho & Dane, 2024).
2. **Winner-Takes-All Market Dynamics**: The intense competition among a handful of companies building large language models could lead to a winner-takes-all market, with others struggling to keep up (Goldman Sachs, 2024). This competition could result in uncertain returns and overinvestment by dominant players, potentially distorting ROI calculations.
3. **Uncertain Returns**: Generative AI's ROI is still uncertain, with significant investments yielding few tangible benefits so far. In contrast, semiconductors and cloud computing have proven track records. Semiconductors grew at a CAGR of 10.6% from 2017 to 2022, while cloud computing is expected to reach $1.3T by 2026, growing at a CAGR of 14.9% from 2021 to 2026 (Statista, 2023).
Given the uncertainty surrounding generative AI's returns, consider alternative sectors with stable cash flows and growth potential. Utilities and renewable energy are promising, driven by AI's increasing power demands. Companies like Brookfield Renewable Partners (BEP) offer strong fundamentals, long-term contracts, and inflation-protected revenues. Additionally, REITs like Cohen & Steers Quality Income Realty Fund (RQI) provide stable yields and potential capital gains. Diversify with funds like XAI Octagon Floating Rate & Alternative Income Trust (XFLT) and income-generating investments such as Scotiabank for reliable high dividends.
In conclusion, while generative AI holds promise, its profitability remains uncertain. As an investor, it's essential to prioritize sectors that generate stable profits and cash flows, such as utilities, renewable energy, and REITs. By focusing on income-focused strategies, you can secure steady returns and avoid the risks associated with speculative ventures like AI.
1. **Lack of Clear Use Cases**: Despite the hype, generative AI's practical applications remain largely untested. The market has yet to see tangible returns on the $1 trillion invested in AI infrastructure. This makes it challenging to predict future returns, as seen in the contrasting views of Goldman Sachs' portfolio managers (Cho & Dane, 2024).
2. **Winner-Takes-All Market Dynamics**: The intense competition among a handful of companies building large language models could lead to a winner-takes-all market, with others struggling to keep up (Goldman Sachs, 2024). This competition could result in uncertain returns and overinvestment by dominant players, potentially distorting ROI calculations.
3. **Uncertain Returns**: Generative AI's ROI is still uncertain, with significant investments yielding few tangible benefits so far. In contrast, semiconductors and cloud computing have proven track records. Semiconductors grew at a CAGR of 10.6% from 2017 to 2022, while cloud computing is expected to reach $1.3T by 2026, growing at a CAGR of 14.9% from 2021 to 2026 (Statista, 2023).
Given the uncertainty surrounding generative AI's returns, consider alternative sectors with stable cash flows and growth potential. Utilities and renewable energy are promising, driven by AI's increasing power demands. Companies like Brookfield Renewable Partners (BEP) offer strong fundamentals, long-term contracts, and inflation-protected revenues. Additionally, REITs like Cohen & Steers Quality Income Realty Fund (RQI) provide stable yields and potential capital gains. Diversify with funds like XAI Octagon Floating Rate & Alternative Income Trust (XFLT) and income-generating investments such as Scotiabank for reliable high dividends.
In conclusion, while generative AI holds promise, its profitability remains uncertain. As an investor, it's essential to prioritize sectors that generate stable profits and cash flows, such as utilities, renewable energy, and REITs. By focusing on income-focused strategies, you can secure steady returns and avoid the risks associated with speculative ventures like AI.
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