It’s hard to believe that the AI revolution could get much bigger than it already is.
After all, the world’s largest technology companies are spending hundreds of billions of dollars building AI data centers. And companies in practically every industry are experimenting with AI to write software, create advertisements, answer customer questions and automate everyday tasks.
It’s powering robots and driving the growth of some of the most valuable companies on Earth.
So you might assume we’re already well into the AI revolution.
But I’m convinced that despite everything we’ve seen over the past few years, the AI revolution has barely started.
And I have the numbers to back up that claim.
How Much Are We Really Using AI?
Let’s start with the companies that make up the S&P 500.
Nearly 30% of them now report some kind of measurable benefit from AI. But only about 2% publicly report a specific AI metric that they regularly track.
That doesn’t mean the others aren’t measuring AI’s impact.
But it does imply that relatively few companies are ready or able to show investors exactly what AI is doing for their businesses.
Andreessen Horowitz describes AI adoption today as “broad and shallow.” In other words, a lot of companies are using it, but few of them are using it everywhere.
AI also accounts for a tiny fraction of what most companies spend on technology.
At the same point in the cloud computing boom, companies were already spending about 4% of their IT budgets on the cloud. Yet most estimates put AI spending below that level today.
So despite all the money pouring into AI chips and data centers, the companies that will ultimately use all that computing power are still near the beginning of the adoption curve.
But a handful of companies are starting to show us what AI is capable of.
For example, Walmart has an AI shopping assistant called Sparky that helps customers find and compare products.
Over the past year, the number of people using it increased 70%. And customers who shop with Sparky spend 40% more per order than those who don’t.
Amazon is seeing something similar with its AI-powered Alexa. Customers who use it for shopping also spend more than 40% more per order than those who don’t.
Shopify says its Sidekick AI assistant is helping new merchants get started.
Image: Shopify
Those receiving its personalized guidance were 8% more likely to reach five orders within their first 15 days.
And the company is seeing similar results among shoppers. Visitors arriving through AI-powered search convert into customers at a rate roughly 80% higher than those coming from traditional search.
None of these companies have completely reinvented their businesses around AI. They’re simply finding ways to make shopping easier, help merchants sell more and give customers a better experience.
And they’re already seeing some promising results.
But what happens when more companies start finding ways to use AI throughout their businesses?
That’s the part of this buildout that most people are missing.
Technology companies are spending hundreds of billions of dollars to build data centers. Utilities are racing to build the power plants and transmission lines needed to support them. And companies are borrowing billions of dollars to keep this buildout going.
Yet the need for more compute shows little sign of slowing.
Cloud providers continue to report that demand for computing power is greater than the supply they can provide. In fact, their backlog of contracted cloud business has roughly doubled over the past year.
Even older AI chips are holding their value.
Nvidia’s A100 was introduced back in 2020. In the world of computer chips, that’s ancient.
Yet rental prices for A100s have held up because companies can still find plenty of work for them to do.
And this is all happening when most businesses are still learning how to put AI to work.
In other words, we’re building an enormous amount of infrastructure for a technology that hasn’t come close to reaching its full potential.
But imagine what happens when that changes.
Instead of employees occasionally asking an AI assistant for help, companies will have armies of AI agents working for them around the clock. They’ll answer customers, write software, analyze data, process paperwork and complete thousands of other tasks with far less human involvement.
And all that activity will require an enormous amount of computing power.
That’s why I say the AI revolution has barely started.
We see a massive amount of money being spent on data centers and assume we must already be deep into the boom.
But that’s just the infrastructure boom.
The adoption boom is still catching up.
Here’s My Take
I understand why some investors are worried about how much money is being poured into AI.
We’re talking about an enormous investment in a technology that most businesses are still learning how to use.
But that’s what makes this opportunity so exciting.
Companies like Walmart, Amazon and Shopify are already seeing measurable benefits from relatively simple applications of AI. Now consider what happens when more businesses start using it throughout their operations.
That’s when we’ll begin to see what this technology is really capable of.
And that’s why I’m convinced the AI revolution is just getting started.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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