Will AI ever pony up on ROI? Investors aren’t so sure anymore. Two weeks ago, Jim Covello, head of equity research at Goldman Sachs, predicted that the AI bubble was about to burst. Just days ago, Wall Street started wondering when AI was going to become profitable — if ever.

In the year and a half since OpenAI kickstarted the modern gold rush, Silicon Valley has poured tens of bns of USD into the technology — at the expense of 84.4k workers just this year. The chatbots, which are still struggling to differentiate between fact and fiction, are quickly being used as substitutes for research analysts, coders, and customer service agents, and just as quickly losing consumer good faith after attempts by Big Tech to substitute human creativity and malicious user manipulation of others’ pictures to generate non-consensual intimate imagery. All while chatbots still “have no clear path to monetization.”

Disappointing earnings and outlooks from tech giants that have gone all-in on AI spending have helped send Silicon Valley stock into a tailspin. Amazon shares were down 8.7% at the end of trading last week and Intel stock took a double digit dive after announcing a scramble to mitigate big AI spending by cutting USD 10 bn in costs and tens of thousands of jobs. Coupled with dispiriting job data recently published by the US Bureau of Labor statistics and a surprisingly bleak manufacturing index that caused concern of an approaching US recession, the S&P 500, Nasdaq, and Russell 2k all stumbled significantly at the end of last week and seem set to continue the decline as US markets open today.

Some investors expected — and maybe hoped — that the tech giants would soften their gung-ho attitude and rein in AI spending. These AI-forward companies are being asked when the tech is expected to “create greater value over time versus just cutting costs.” Investors want to know whether AI monetization will ever match its capital expenditure requirements and whether all AI has generated was “too much spend, too little benefit.”

Instead of comforting or convincing numbers, Google, Microsoft, and Meta had opted to double down on their AI expenditure, announcing plans to pour additional bns into the field, hedging all their bets on an AI-powered future. In addition to the additional greenbacks, tech leaders have asked for time. And a lot of it. “[Fifteen] years and beyond,” estimated Microsoft CFO Amy Hood. Meta CFO Susan Li was more vague, predicting returns “over a longer period of time,” making it out to be the cost of early market entry.

The cash cow is dead. Silicon Valley had long been a reliable source of profit growth on a quarterly basis, making it a hotspot — and safe bet — for investors. DA Davidson analyst Gil Luria explained that returns on a 10-15 year timeline has changed the goalposts, making funding AI “a venture investment, [not] a public company investment.” Current applications of the technology are nowhere near justifying the expenditure requirements, said Luria, corroborated by Covello, who believes “the technology isn’t designed to solve the complex problems that would justify the costs.”

CNN has used Tesla’s lofty AI goals as a cautionary tale. The auto manufacturer has marketed AI-powered “full self-driving” Autopilot technology as a core feature of their vehicles since 2015, pledging full capability in the near future for the past nine years. But it has never graduated beyond driver-assist technology, a far cry from CEO Elon Musk’s claims, and one consistently flagging safety concerns, having been at the center of 956 crashes and 29 deaths in the past four years.

How long will investors hold out? Luria doesn’t see them lasting beyond early next year before they pressure the tech giants to pull back on infrastructure investments and expenditures until revenue growth signals optimistic long-term projections.

A minority of experts are less fatalistic, and are calling for investor grace. Claudia Sahm, an economist that developed the typically reliable Sahm Rule recession indicator, isn’t alarmed by the perceived red flags, noting that household income, consumer spending, and business investment are holding up. Recent spending movements born by social media and consumer sentiment clouding purchasing of AI-powered products may see the tides turn against Sahm’s favor.

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