With artificial intelligence investments rising, questions also arise about sky-high expenses.
CFOs are digging deep to invest in artificial intelligence in 2024.
Approximately 90% of U.S. CFOs say their AI budgets are on the rise in 2024, with 71% saying they’ll boost their AI budgets by more than 10% this year, according to a recent Gartner survey.
“As organizations venture further down the AI path, executives must agree on their ultimate goals for the use of this technology,” said Alexander Bant, chief of research at Gartner Finance. “CFOs should complement increased spending on AI with critical C-suite discussions about the organization’s AI ambition.”
Coming Back to Earth?
Maybe those ambitions should be tempered as more C-suite executives are going public over concerns over the lack of AI-generated profitability.
While it’s early in the game, as the bulk of U.S. corporate AI ventures are just getting started, some executives are already sounding the alarm over expectations versus reality regarding the financial end of their AI ventures.
“Some once-promising start-ups have already cratered, and the suite of flashy products launched by the biggest players in the AI race — Open AI, Microsoft, and Google — have yet to upend the way people work and communicate with each other,” says The Washington Post in an eye-opening April 18 story on AI’s track record to date. “While money keeps pouring into AI, very few companies are turning a profit on the tech, which remains hugely expensive to build and run.”
Noting how the AI “hype bubble is deflation,” The Post cites sentiment from companies building AI apps and tools and some companies using AI to paint a more ominous picture of where artificial intelligence stands.
Some of that sentiment is rooted in reality, as AI remains a nascent technology in many ways.
“If you compare a mature market to a mature tree, we’re just at the trunk,” said Ali Golshan, founder of data sets developer Gretel AI, in comments to The Post. “We’re at the genesis stage of AI.”
Just yesterday, Google CFO Ruth Porat said the tech giant is increasing its layoffs and relocation efforts, largely to help pay for its burgeoning AI budget.
“The tech sector is in the midst of a tremendous platform shift with Al,” Porat wrote in a recent internal company memo first reported by CNBC. “As a company, this means we have the opportunity to make more helpful products for billions of users and provide faster solutions to our customers, but it also means we collectively have to make tough decisions, including how and where we work to align with our highest priority areas,” she said.
On a recent quarterly earnings conference call, Porat noted that Google’s company’s investment in data centers and semiconductors would be “notably larger” in 2024.
Microsoft “Mum” on Profits
It’s not just Google.
Microsoft has been beating the drum on its “GitHub Copilot” AI code-writing assistant, which now boasts 1.3 million users, the company recently reported. However, as the Post article pointed out, Microsoft has been “mum” about how much profit it earns from AI.
“We’re finding that AI requires a paradigm shift,” noted Jared Spataro, Microsoft’s corporate vice president of AI at Work. “It’s not like a traditional technology deployment where IT flips a switch. Businesses need to identify areas where AI can make a real impact and strategically deploy AI there.”
That’s not to say Microsoft isn’t making money on AI; it’s just the uncertainty surrounding AI-budget metrics hasn’t pinned down any profit yet.
On the upside, Evercore technology analyst Kirk Materne recently raised his MSFT profit estimate due to AI revenues – at least for the long term.
Products like GitHub, Microsoft 365, Dynamics 365, and Azure should add $54.6 billion to Microsoft’s revenue in 2027, significantly stronger than the $50.4 billion Materne pegged nine months ago. In 2028, Materne says the company should expect an AI-driven cash injection of $82.5 billion contribution to revenue and a $5.10 per share addition to profits.
Brian O’Connell, a former Wall Street bond trader and best-selling author, is a prominent figure in the finance industry. With a substantial background as an ex-Wall Street trader, he has authored two best-selling books: ‘The 401k Millionaire’ and ‘CNBC’s Creating Wealth’, demonstrating his profound knowledge of finance and investing.
Brian is also a finance and business writer for esteemed national platforms and publications, including CNN, TheStreet.com, CBS News, The Wall Street Journal, U.S. News & World Report, Forbes, and Fox News.
