Posted on July 10, 2018 by staff

AI bubble will burst ‘and clear air for growth’


Artificial intelligence is the hot tech topic of the moment, with companies of all shapes and sizes excited about the opportunities it will bring.

However, there is one company that isn’t so certain that the future is bright for the tech.

Rethink Research believes that the AI bubble is due to burst following several years of sustained hype that have generated unrealistic expectations and excessive investments which cannot possibly be paid back.

This is the key message in the latest report on AI technologies from Riot Research, the forecasting arm of Rethink.

The report estimates the AI market will only reach $39 billion globally by the end of 2023, which is considerably less than most previous forecasts.

The shortfall is explained by the fact that in some sectors AI will flop dismally over the forecast period, while thriving in others.

A massive cull of VC-backed start-ups in the AI marketplace is expected during 2019 and 2020, but for most this is a good thing says the report. In the aftermath, there will be a clear pattern of AI survivors in key vertical (and horizontal) sectors.

This is a predictable repeat of earlier infamous bubble burstings, such as the dotcom collapse of 2001 which lost investors billions of dollars, but from whose ashes great tech giants such as Google and Amazon emerged.

The report, entitled AI: Show me the Money, is the latest report from Riot Research, identifies key industrial sectors in AI which will make an impact and it forecasts sector by sector growth to 2023.

The report dissects the technology, the markets and the major players with indications of which are set for success.

Vertical sectors where AI will do well over the next five years are cyber security, automotive, healthcare manufacturing and finance and insurance – with the verticals market reaching $24.8 billion by 2023.

Two major horizontals – machine vision and natural language processing – will reach $14.1 billion and $15.0 billion respectively, totalling $29 billion between them.

“Huge sums have been invested in AI with the upward trend still accelerating through 2018,” said report author Philip Hunter.

“Global VC-based investments alone have risen from $3.2 billion in 2014 to $12 billion in 2017 while the number of funding rounds per year for AI start-ups doubled to around 1,300 over that period.

“The total invested globally in AI during 2018 alone amounts to over $100 billion, taking account of money spent by governments and big corporations as well as VC funding of start-ups.”

This is more than double the expected annual return from AI even by 2023 and so there is no way this is going to generate a return on investment over the forecast period, Hunter added.

“Investors will begin rolling up start-ups which fail to generate revenues into others which show promise during 2019,” he said.

He explains that so far the only way AI start-ups have made money so far is from being acquired rather than selling products or services says the report.

Valuations have been based purely on the assessment of the people working for the company, often at as much as $10 million a head.

“This dangerous method of valuing start-ups is insane,” says Hunter.

“Key people can leave after an acquisition – unless golden handcuffs tied them to the deal, and even that can lead to disenchantment on both sides.

“After the bubble bursts more realistic and sustainable valuations will be placed both on AI companies and their engineers.”