By Anjan Roy
Famed Indian origin tech guru, Sunder Pichai, the supremo of Google has spoken some home truths about the much-hyped potentials of AI (artificial intelligence). He has observed that any collapse of the astronomically high valuation of small Ai start ups could result in a generalised crash in the technology sector.
The global stock markets have valued the AI companies extremely high and their market capitalisation bears no semblance to their present day operations.
He cited that OpenAI, which shot into fame relating its AI chatbot, “ChatGPT, has been now valued at $1.4 trillion by investors, when its own operations did not reach even one-thousandth of that figure. So the question would surely arise how eventually the start up would justify its astronomical valuation and meet the expectations of returns on their investments.
Sunder Pichai apart, a major player in the financial sector, Jamie Dimon, chief of US investment bank, J.P. Morgan, similarly predicted a possible correction in the valuation of the AI start ups and other investments. Dimon had observed that a collapse in the AI bubble could quickly morph into a general slide.
Sundar Pichai was talking to an exclusive interview with the BBC at the company headquarters. Pichai is one of the strongest proponents of strong AI initiatives and believes that the new breakthrough could bring fresh gains in the technology sector which could also translate into higher efficiency across the economy.
However, many observers believe that while AI can have immense new potential, the AI tools could result in wide spread loss of employment as well. What will be needed would be re-tool the present day skills and make these complimentary to the AI products which should start being available on a wider scale.
Pichai’s company, Google and its parent Alphabet, has been heavily invested in AI and its development. Google has reaped some benefits from these initiatives and can no longer be considered an AI-laggard. At the same time, huge sums invested in development of AI might backfire if these did not rove as effective as predicted.
Some of the experts are comparing the rising value of the AI segment in the stock market valuation to what has come to be known as the “dot.com burst” of the late 1990s. The proliferation of the internet based activities and companies in the 1990s had bred expectations of huge profits and therefore the market valuation of these companies rocket upwards. The process could not have been recreated ad infinitum and thereby when small corrections took these got amplified many times over.
Explaining the phenomenon, the then chairman of the US Federal Reserve, Alan Greenspan, had described the stock market boom around the Dotcom companies as an example of “irrational exuberance”. Underlying the sharp increases in market capitalisation was the philosophy of overseeing by regulatory authorities.
Greenspan and others had advocated a “light touch” regulation of the markets and allowing the market players all freedom to operate. However, this did not take into account the compounded impact of the optimistic evaluation by numerous market players. Hence, the light touch regulation to the ground level developments resulted in a massively overheated market.
The inevitable result was a crash which came to be known as the Dotcom burst. The sectoral collapse of the smaller technology sector companies was amplified into a general market collapse as well. It took years for the financial markets o overcome the deleterious effects of the Dotcom burst.
Sunder Pichai’s interview is apparently limited to his observations and assessment of the technology sector as such. He seems to have confined himself to the fates of the technology sector company, including the biggest of them. However, financial histories point at the ripple effect of any such dramatic development.
Although it is not quite clear what Pichai is meaning through his cautious words exactly, it is not wildly wrong to assume that any abrupt break in the virtuous cycle for the AI scrip could run into a multiplier syndrome. This can set off a downward vicious cycle for a while resulting in even a generalised financial crisis.
This is more so because the financial markets and the economies are today much more globally integrated than these were even in 2008 at the time of the global financial crisis. If anything, brace your seat belt and hope for the best. (IPA Service)
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