MIT study on AI profits rattles tech investors
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Wall Street's biggest fear was validated by a recent MIT study indicating that 95% of organizations studied get zero return on their AI investment.
Why it matters: Investors have put up with record AI spend from tech companies because they expect record returns, eventually. This study calls those returns into question, which could be an existential risk for a market that's overly tied to the AI narrative.
Driving the news: MIT researchers studied 300 public AI initiatives to try and suss out the "no hype reality" of AI's impact on business, Aditya Challapally, research contributor to project NANDA at MIT, tells Axios.
- 95% of organizations found zero return despite enterprise investment of $30 billion to $40 billion into GenAI, the study says.
- Even firms that are now using AI are not seeing widespread disruption.
Between the lines: Companies that bought AI tools were far more successful than those that built internal pilots, according to the study.
What they're saying: "My fear is that at some point people wake up and say, alright, AI is great, but maybe all this money is not actually being spent all that wisely," says Steve Sosnick, chief strategist at Interactive Brokers.
- Sosnick says it appears retail investors are coming in to buy dips amid the Big Tech slide, while institutions seem to be trimming exposure.
Situational awareness: The study comes at a challenging moment for Wall Street.
- Traders are anxiously awaiting Fed chair Jerome Powell's remarks at Jackson Hole.
- August and September are seasonally volatile months for stocks.
- We're coming off a rally in markets that has felt unstoppable.
- That backdrop can make it easy for one thing, including a MIT study, to shake investors.
What we're watching: It's difficult to suss out when Wall Street will run out of patience with AI spending.
- Studies like this one don't necessarily help that timeline.
What we're watching: Is this study an indication that corporations will improve their AI usage overtime by adopting best practices like buying versus building?
- Will firms learn which corners of their businesses stand to gain the most from AI adoption?
- And will all of that happen in the timeline Wall Street is looking for?
Be smart: Big Tech capital expenditure has not been this high since the year 2000.
- We all know what happened after that. Will this time be different?
