After NVIDIA’s stock reached an all time high last week and Elon Musk raised $6 billion for xAI in an oversubscribed round valuing the company at $24 billion, however, there are signs that the initial euphoria may be starting to subside as reality sets in. The Wall Street Journal is asking whether the AI hype is waning.
Evidence the AI hype is waning
Data by Picthbook shows that Generative AI seed investments were down 76% in Q1 2024 as investors take a wait and see approach.
Jefferies’ analysis shows mentions of AI in earnings calls peaked and has declined in Q1 2024 compared to a year ago (see graph). This suggests companies are already talking about AI less.
The pace of improvements in AI language models is slowing as low-hanging fruit gets exhausted. Models trained on most of the internet are becoming commoditised.
While powerful, today’s chatbots still can’t match human subject matter experts. Take for example some of Google’s recent AI results spewing ridiculous answers. Questions remain about training data/copyright, privacy, security and costs.
As a result, Investors are becoming cautious, recognising current AI spending may not drive returns in the near-term. Funding for AI startups has cooled in recent months.
The case for continued AI momentum:
? It’s still early innings for LLMs – Microsoft and Google are still early in their rollouts of generative AI in search, productivity software, cloud and more. Meta is working on its open source LLaMa. Enterprise adoption is just beginning (suggesting there’s quite a lot of potential still). OpenAI scaled to over $1 billion in revenue in less than six months.
? Ongoing breakthroughs in new techniques like reinforcement learning from human feedback (RLHF) continue to boost AI’s capabilities. We’ve yet to exhaust the potential of smaller, vertical models.
? AI is being embedded into more and more products, even if no longer always the main selling point. In that sense, it’s become table stakes rather than hype.
My take
The AI revolution is real and here to stay, but the hype cycle has likely peaked for now (as I shared on VC Cafe in August 2023) as technical challenges and economic realities set in. But in the near-term, the focus will shift to the hard work of implementation and driving ROI with today’s AI technologies.
What do you think – have we passed peak AI hype for the current cycle?
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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