Backing the Boom: Why the Rise of Generative AI is Nothing Like the Dotcom Bubble

The initial launch of ChatGPT just one year ago paved the way for a generative AI boom that’s continued to captivate a vast array of industries around the world. With more firms seeking to embrace this next generation of AI, some market commentators are gaining a sense of déjà vu.

This widespread clamoring to embrace generative AI draws parallels to the dotcom boom at the turn of the 21st Century. With ChatGPT users recently dropping for the third consecutive month, should we be wary of a bubble that could be destined to burst?

"I think this will be the biggest bubble of all time," warned Emad Mostaque, CEO of Stability AI. "I call it the 'dot AI' bubble, and it hasn't even started yet."

\Mostaque’s views were echoed by James Penny, Chief Investment Officer of TAM Asset Management, in a recent Bloomberg interview.

"Companies that even mention the word AI in their earnings are seeing boosts to their share price, and that smells very much like the dot-com era," Penny explained.

Generative AI has certainly become the word of the year in terms of emerging technology, and stocks that possess varying forms of AI exposure have experienced significant growth throughout 2023.

One of the biggest beneficiaries of the rise of generative AI on Wall Street has been NVIDIA, which recently attained a market capitalization of over $1 trillion, recording almost 200% growth throughout the first three quarters of 2023 alone.

“The company is growing rapidly and is well-positioned to benefit from the development of artificial intelligence (AI), metaverse, and other new technologies,” explains Maxim Manturov, head of investment research at Freedom Finance Europe.

“Factors such as generative artificial intelligence and the metaverse may provide NVIDIA with a FAANG level of popularity. Generative artificial intelligence is a rapidly growing field that has the potential to revolutionize many industries,” Manturov added.

As well as its position as a market leader in providing the hardware that can power generative AI services, NVIDIA also moved quickly in embracing the technology. In March 2023, the company announced a set of cloud services providing businesses with the resources to ‘build refine and operate custom large language models and generative AI models.’

So, should NVIDIA and Wall Street’s other key players fear an AI bubble that’s destined to burst? Evidence suggests that the rise of generative AI could be powerful enough to transcend the hype of the dot-com bubble.

Tangible Signs of Growth

While the dotcom boom saw hype swell to the point where stock values became no longer sustainable, there’s much about the excitement for AI that appears to be far more tangible.

Crucially, circumstances surrounding tech markets are fundamentally different from the turn of the century, and many Wall Street firms have been reacting to widespread investor sell-offs throughout 2022, punctuated by high inflation and rising interest rates.

As Financial Times columnist John Plender notes, “applying a higher discount rate to distant future cash flows in the tech sector shrank the present value of those cash flows. This year’s bounce, far from being driven by central banks, reflects something real.”

The potential of generative AI could transform how the economy works on a fundamental level, which can see significant and positive change throughout a vast range of industries that transcends the potential of the dotcom boom some 25 years ago, with more people investing in it.

According to investment advisory firm Roundhill Investments, comparisons between the current market and the dotcom boom ignore the underlying data points that can indicate that a bubble is emerging.

The firm’s analysis of key factors that can indicate a bubble, such as the emergence of irrational exuberance, high valuation, weak stock fundamentals, growing IPO volumes, and the rise of baseless market narratives suggests that a bubble for generative AI is not currently in play.

Although this doesn’t necessarily mean that generative AI is immune to becoming a bubble in the future, we’re seeing many signs of tangible growth and industry adoption that point to a technology that has the power to disrupt the vast majority of sectors.

The Rise and Rise of Generative AI Use Cases

The clearest sign that generative AI isn’t in a bubble can be found in its rapidly growing set of use cases across different industries.

Recently, system software firm Workday announced that it will be launching its own AI marketplace in the first half of 2024, with partners like BetterUp, Paradox, Hiredscore, Techwolf, Accenture, and Amazon already signed up.

“The Workday AI Marketplace will enable our customers to harness the incredible amount of AI innovation happening today while at the same time give them the peace of mind in knowing that each solution is proven, trusted, and meets Workday’s stringent standards for responsible AI,” said Aneel Bhusri, Workday’s co-founder and co-CEO.

“Combining the power of the Workday platform with some of the world’s most innovative AI native companies will give our customers a running start in building for the future.”

Just two days prior to Workday’s announcement came a similar news story from another software firm, SAP.

Rather than an AI marketplace, SAP opted to utilize generative AI to develop a Joule, natural-language co-pilot that’s designed to provide rich contextualized insights for businesses.

“By quickly sorting through and contextualizing data from multiple systems to surface smarter insights, Joule helps people get work done faster and drive better business outcomes in a secure, compliant way,” explained a SAP press release. “Joule delivers on SAP’s proven track record of revolutionary technology that drives real results.”

Generative AI has even provided fresh opportunities in the world of social media, offering intelligent image editing on Instagram and generative AI stickers on Meta’s messaging apps that have the power to create images based on textual cues.

These generative AI use cases illustrate that the technology isn’t just helping businesses modernize their processes; it’s showing that AI is adaptable enough to provide bespoke solutions to companies regardless of their sector or USP. It’s this flexibility and adaptability that makes generative AI a technological proposition without precedence.

Finding Sustainability in an Ageing Workforce

In a recent Barclays report into the emergence of AI technology, it’s suggested that the adoption of AI has come at an opportune time in nations like the United Kingdom, which has recorded an increasingly older workforce since 2020, with 10-year projections pointing to a growing trend.

Although there is plenty of fear among workers that generative AI may soon become intelligent enough to replace them entirely, it’s worth considering that artificial intelligence can be a sustainable solution in maintaining productivity for businesses that are seeing more employees reach retirement age without a large enough talent pool to recruit a replacement.

This makes AI’s rising use cases not only transformative but essential for businesses worldwide seeking productivity enhancements.

AI’s Big Bang

While falling numbers of ChatGPT users are worth monitoring, it’s more likely a sign of a maturing AI market. For many months, ChatGPT was the star of the generative AI boom, and its ability to generate richly detailed and accurate content from simple prompts provided a crucial novelty factor among curious users.

Now, as generative AI is beginning to permeate the world around us less than a year on from ChatGPT’s initial launch, this new technological frontier is less of a novelty and more of a necessity for growth.

With more varied and bespoke use cases emerging on quite literally a daily basis, the generative AI boom is shaping up to be more of a big bang and is more likely to complement future technological developments like 5G and the metaverse rather than be replaced by them.

While the danger of market hype can always lead to inflated prices, it’s clear that generative AI is a rare transformative technology that’s likely to change the world. With this in mind, the available evidence points to more of a boom than a bust.