Goldman Sachs Questions Economic Viability and Transformative Potential of Generative AI

Goldman Sachs, one of the world’s largest investment banks, has published a research paper questioning the economic viability and transformative potential of generative AI, despite the current hype and huge investments in the technology.

Key takeaways from the Goldman Sachs report:

• The paper, titled “Gen AI: too much spend, too little benefit?” is based on interviews with Goldman Sachs economists, researchers, MIT professor Daron Acemoglu, and infrastructure experts.
• It questions whether the massive spending on generative AI infrastructure will ever pay off in terms of benefits and returns, noting that there is currently “little to show for” these investments.
• The report suggests that investors may continue to get rich from AI-related stocks, even if the technology fails to deliver on its promises, as “bubbles take a long time to burst.”

Concerns about AI’s impact on the stock market and corporate profitability:

• AI optimism is driving growth in stocks like Nvidia and other S&P 500 companies, based on the assumption that generative AI will lead to higher productivity through automation, layoffs, lower labor costs, and increased efficiency.
• Goldman Sachs argues that these stock gains are already baked in and that a very favorable AI scenario may be required for the S&P 500 to deliver above-average returns in the coming decade.
• The report emphasizes that AI’s impact on corporate profitability will be critical in determining future stock market performance.

Skepticism about the current state and potential of generative AI:

• MIT professor Daron Acemoglu expresses doubts about the industry’s reliance on scaling AI training data to solve the technology’s growing pains and problems, stating that the quality of data matters and that the current architecture of AI products may have limitations.
• Jim Covello, Goldman Sachs’ head of global equity research, is skeptical about both the cost and ultimate transformative potential of generative AI, likening the “AI arms race” to virtual reality, the metaverse, and blockchain – technologies that saw substantial investment but have few real-world applications today.
• Covello notes that even basic summarization tasks often yield illegible and nonsensical results, and that the technology is nowhere near where it needs to be to be useful for such tasks, despite its high cost.

Broader implications:

The Goldman Sachs report, along with a recent piece by Sequoia Capital partner David Cahn, highlights growing skepticism about the transformative potential of generative AI, not just among journalists, artists, and workers, but also within the financial institutions responsible for billions of dollars in AI investments. As the AI frenzy continues, it remains to be seen whether the technology will live up to the hype and deliver the promised benefits, or if it will ultimately fall short of expectations, leaving investors and companies grappling with the consequences of their massive spending on AI infrastructure and development.