Gales of creative destruction will sweep away folly and naivety next year as they batter what appears to be the largest boom in modern history – the scramble to dominate artificial intelligence (AI) driven by US-China rivalry. The
market debut of China’s Moore Threads last week, its shares more than quintupling on the first day, underscores the feverish momentum.
Speculative assumptions guiding trillions of US dollars in
AI investments are colliding with real-world obstacles. Escalating costs,
stratospheric stock valuations, tenuous collaborations and energy bottlenecks are compounding the inevitable challenges when new technologies struggle for profitability. Many are worried the bubble may be bursting.
Morgan Stanley projects that the cumulative amount spent worldwide on data centres could exceed US$3 trillion by year-end 2028. China’s AI investment could hit 700 billion yuan (US$99 billion) this year, 48 per cent more than last year, according to Bank of America, with the government supplying US$56 billion.
Such vast capital expenditures will only pay off if demand for AI services grows fast enough to absorb the costs. Bain forecasts that companies will need
US$2 trillion in annual revenue to profitably fund the computing power required to meet AI demand by 2030, but the world is still US$800 billion short of keeping pace with demand.
China’s AI industry could add
more than 11 trillion yuan to the country’s gross domestic product by 2035, about 4 to 5 per cent of total output, according to the China Telecom Research Institute. Even that pace is likely to fall short of the revenue needed to recoup investment costs.
AI adoption is proving slower and more uneven than expected. Apollo Academy has reported a decline in AI adoption among US firms, drawing on the US Census Bureau’s fortnightly survey of more than a million firms. The Saint Louis Federal Reserve found only a modest increase in work-related generative AI use, from 33.3 per cent to 37.4 per cent of US workers, in the 12 months to August, as non-work uses rose more sharply. Chinese companies are likely experiencing similar patterns.
