Silicon Valley still has twinkly stars in its eyes over AI — but on Wall Street, analysts are beginning to doubt that revenue from the new technology will support its massive costs any time soon.

Why it matters: The U.S. stock market's current highs have been driven in large part by optimism about AI.

The big picture: Newly published reports from Goldman Sachs, Barclays, and Sequoia Capital have crunched the numbers on how much has been and will be spent on AI-related infrastructure, and how much extra revenue companies will need to make all that spending worth it.

• Nvidia's costly AI chips may be flying off the shelves, but they don't seem likely to pay for themselves in higher corporate revenues any time soon.

The big picture: In the best-case scenario from skeptics and cautious optimists, the promise of AI will take much longer to materialize than the current investment frenzy suggests.

• In the worst case, it never will.
• Either way, billions of dollars in capital are almost certain to be incinerated.

Between the lines: "Overbuilding things the world doesn't have use for, or is not ready for, typically ends badly," Goldman Sachs head of global equity research Jim Covello warns.

• Sequoia's David Cahn similarly cautions against "the delusion that we're all going to get rich quick, because [artificial general intelligence] is coming tomorrow."

Follow the money: Goldman Sachs projects that companies and utilities will spend about $1 trillion in AI capital expenses in "the coming years."

Zoom in: The lack of revenue is at the core of the skepticism.

• Cahn notes that OpenAI is still generating the bulk of AI-related revenue right now, and its annualized revenue has been pegged at a mere $3.4 billion.
• Even his generous predictions of $5-10 billion in annual revenue from major tech companies — from Google and Meta to Tencent and Tesla — still leave a giant hole of $500 billion in revenue just to make up for 2024's infrastructure investment, according to his calculations.

Reality check: Barclays estimates that AI capital expenditures by 2026 will be sufficient to support 12,000 AI products that match the scale of ChatGPT.

• "We do expect lots of new services that will bring some of this bull case to light, but probably not 12,000 of them," write Barclays analysts.
• Meanwhile, Goldman's Covello points out that even Salesforce, which has been aggressively spending on AI, showed little revenue boost in its Q2 financials.

Zoom out: Other unknowns include whether AI tech will become cheap enough to generate significant cost savings, whether it'll solve the kind of highly complex problems that would make it worth the price, and whether we'll be able to supply the energy needed to keep up with AI's growth.

The other side: Tech leaders don't see "overbuilding" as a dirty word.

• They remember how the dot-com bubble overbuilt telecom capacity before the bust of 2000-2002 wiped out legions of investors. But within a handful of years, all that capacity — and plenty more — was put to good use.

Data centers will bring Nvidia about $150 billion per year on an annualized basis by the final quarter of 2024, estimates David Cahn of Sequoia Capital.

• Cahn's rule of thumb is that companies in aggregate will need to generate about four times in revenue what they spend on Nvidia data centers in order to cover the cost of energy and their own margins.
• That's where his report's title — "AI's $600 Billion Question" — comes from.

Robots and other smart machinery will comprise up to one-third of the U.S. military in the next 10 to 15 years, retired Army Gen. Mark Milley, a former chairman of the Joint Chiefs of Staff, said at an Axios event yesterday.

Why it matters: Such widespread adoption of unmanned and artificial intelligence-fueled tools of war would be a major reshaping of the U.S. armed forces — one that would also raise serious ethical questions.

What they're saying: "It'll be a fundamental change, and I would argue that other nations' militaries are going to be similarly designed," Milley said at Axios' Future of Defense event.

• The number of human troops, he added, "will probably be reduced as you move toward robotic systems."

Catch up quick: Militaries have for years tinkered with armed drones, robo-dogs, mechanical mules and more. They now look more viable than ever, with an alley-oop from a digital-first defense industry.

• The Army is experimenting with what's known as human-machine integrated formations, where soldiers fight alongside automatons.
• The Air Force is seeking "collaborative combat" aircraft that can fly alongside human pilots to collect intelligence, confuse enemy electronics and even blow up targets.
• The Navy is in pursuit of a hybrid fleet, with unmanned surface and underwater vehicles augmenting the firepower of sailors and Marines. One pioneer is Task Force 59 in the Middle East.

Friction point: A crew-less tank or pilot-less fighter jet paired with ultra-fast decision-making software stokes fears of killer robots. But safeguards are in place.

• U.S. policy requires a human to pull the trigger. And robotics have wider applications: schlepping supplies far from the front lines, for example, or hauling injured fighters off the battlefield.
• "I lean toward humans in the loop," Milley said of weapons oversight. "But I think this is going to be something that people are going to have to come to grips with here in the next decade or so."

The bottom line: "The country that optimizes those technologies for military use is going to have a very significant — and potentially decisive — advantage in an armed conflict," Milley said.

• AT&T said hackers stole customer data from 2022-23, including call records for "nearly all" its cellular customers, but that no users' names or contents of calls or messages were compromised. (Axios)
• Dozens of content farms are using AI to mass-produce political misinformation for distribution on TikTok, and 41 accounts published nearly 10,000 videos in less than 18 months. (NewsGuard)
• There's potential for more open generative AI models to have a positive impact, as open source programs did for the software industry. (FTC)
• The Senate Armed Services Committee's version of the annual defense policy bill features an array of provisions focused on AI and emerging tech. (Axios Pro)
• Lawmakers are pushing for movement on AI and privacy, but disagreements among parties and chambers continue to thwart progress. (Axios Pro)

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