Artificial Intelligence Struggles with Shortage in Availability
In the rapidly evolving world of artificial intelligence (AI), a unique phenomenon is unfolding. A supply crisis, not a decrease in demand, is the primary challenge facing the industry. This article aims to shed light on this crisis, its causes, and potential impacts on the AI revolution.
The AI sector is grappling with an unprecedented surge in investment, with about 64% of U.S. venture capital funding targeting AI startups in 2025 [1]. This massive concentration of capital, surpassing previous bubbles, is one of the key differentiators of the current AI landscape. The top 10 AI-related companies in the S&P 500 are more overvalued than those at the peak of the 1990s IT bubble [5].
However, the AI industry's potential impact on the revolution is significant yet uncertain due to the scale, concentration of investment, and the nature of its valuation. Like the dot-com bubble, there is enormous hype chasing AI innovation, but about 70% of AI startups remain unprofitable, and expected productivity gains are volatile [1][4].
The second core question facing the AI industry is about the shape of the underlying business that connects the value proposition to its distribution. The goal of the weekly newsletter, which discusses the essence of being a Business Engineer, is to answer three core questions: the shape of the underlying technology, business, and business model.
The first core question is about the shape of the underlying technology that connects the value proposition to its product. The AI revolution is experiencing a supply crisis, not a demand bubble. This crisis could potentially impede humanity's greatest technological leap, as the infrastructure and resource intensity of AI data centers impact electricity and water supplies, raising costs, and slowing broader economic growth [2].
The third core question is about how the business survives in the short term while adhering to its long-term vision through transitional business modeling and market dynamics. The potential impacts on the AI revolution include the possibility of a correction as markets adjust when reality catches up to inflated expectations. Despite the bubble risks, AI advances like the creation of automated bots surpassing half of global internet traffic indicate a structural shift in technology use and business models [3].
In summary, the current AI bubble is distinguished by unprecedented investment scale and overvaluation, combined with real but still emerging technological advances that could trigger a pivotal revolution depending on how market expectations and regulatory environments evolve [1][2][4][5]. The risk in the AI industry is not a decrease in demand, but an inability to produce AI at a fast enough rate. Understanding and addressing this supply crisis is crucial for navigating the AI revolution and harnessing its transformative potential.
- Management of artificial-intelligence businesses needs to address the supply crisis in the AI sector, as the demand for AI products continues to grow, but production rates are unable to keep up.
- In the context of the AI revolution, technology advancements, particularly like the creation of automated bots, are redefining business models, underscoring the importance of understanding the underlying business shape and addressing the supply crisis.
