The high costs of implementation and regulatory risks are among the most commonly cited challenges associated with artificial intelligence (AI). “From an investor’s perspective, the key issue is the difficulty in assessing the measurable value of AI, leading to uncertainty about returns on investment,” notes Radosław Jodko, an investment expert.
Recent unexpected market declines for AI-focused companies have highlighted the volatility and uncertainty of investing in this space. For example, Nvidia, a leading chip manufacturer, lost $580 billion in market value in a single day after its stock price plunged over 17%. The panic was triggered by the success of the Chinese AI model DeepSeek, which is reportedly cheaper yet equally effective as its American counterparts.
“The DeepSeek case illustrates the highly dynamic nature of the tech market, particularly in the AI sector. It also confirms what I’ve been saying for a while: the AI market is still maturing. Both companies and investors are learning to navigate it. While some may claim that AI is the most overvalued investment of recent years, I disagree. It’s too early for such conclusions. AI is undeniably a groundbreaking technology that will significantly impact businesses and societal functioning. However, DeepSeek’s success demonstrates that in tech, no position is unassailable—not even Nvidia’s. It also reflects a new dimension of U.S.-China rivalry. Since Chinese companies were cut off from advanced U.S. chips, they’ve shown they can adapt and thrive without them,” Jodko commented.
DeepSeek: Shaking Up the AI Market
DeepSeek, developed by a Chinese startup, has sent shockwaves through Wall Street. Its impact extended beyond Nvidia, as most Big Tech companies also experienced stock declines. The model is said to rival OpenAI’s ChatGPT, the current leader in understanding models, but at a fraction of the cost. While training GPT-4, released in late 2023, cost over $100 million, training DeepSeek reportedly required less than $6 million.
A Business Reality Check for AI
According to Jodko, the situation aligns with predictions from economists and businesses: a real-world test of AI investments is underway. Companies are now shifting their focus from experimentation to effective implementation, with an emphasis on generating returns.
This shift is evident in the 2024 report by the IBM Institute for Business Value, developed in collaboration with Oxford Economics. The report states that 63% of executives believe their AI portfolios will significantly impact their organizations’ financial performance within the next one to two years. Additionally, 46% of executives plan to scale AI by optimizing existing processes and systems, while only 6% expect to continue experimenting with AI solutions.
“The challenge lies in evaluating AI’s measurable value. Research shows that both investors and companies struggle to determine the benefits of AI investments, creating uncertainty about returns. For companies, the greatest difficulty so far has been implementing AI solutions that transform business models rather than just optimizing existing systems. While the top goal remains innovation in AI-driven products and services, companies are now focused on aligning those goals with changes in their business models,” Jodko explained.
Lower AI Costs Could Expand Adoption
Jodko also highlighted the importance of demonstrating how technological investments generate business value, a factor that will be critical for investors this year.
“Lower computational costs for AI, as demonstrated by the Chinese startup, could significantly change the landscape. This reduction could facilitate broader applications and implementations of AI services. We’ll soon see the effects of this shift,” Jodko concluded.
Source: ManagerPlus
