Tech Industry Struggles Amid AI Boom

You can’t underplay the excitement surrounding artificial intelligence (AI), and moreso, generative AI (genAI) within the business world today. Nearly every industry has found a way to wield this new iteration of AI so as to speed up and simplify once tedious, time consuming processes and, consequently, realize time and cost savings. 

Use cases of the technology have become ample across industries like energy, financial services, consumer and retail, and even semiconductor manufacturing. And while genAI is seemingly improving performance across most sectors, there’s one industry that seems to be falling short: the technology sector.

Many tech companies are still in a “recession” following the wave of layoffs carried out in 2022, when over 93,000 jobs were slashed from public and private tech companies including Twitter, Salesforce, Spotify, Netflix, and many more. It was a direct consequence of the overspending and overhiring that followed the onset of the COVID-19 pandemic. But while most companies have been able to bolster earnings by adopting genAI into their operations, some have remained hesitant about embracing the new era of genAI. 

Because there is minimal federal oversight on genAI’s use cases, companies are entirely responsible for any potential blunders that could result from its outputs. Therefore, concerns abound about how to properly use genAI,  whether algorithms possess potential ethical and prejudicial tendencies, and the repercussions this could have for C-Suite leaders in the long run.  

While the second-guessing of genAI amongst corporate leadership in tech is founded, is it proving to be more harmful than beneficial? Some experts say this hesitancy will result in companies being left behind in a post-pandemic world. But more importantly, are companies who embraced AI early on going to fare better than those who didn’t? Will their investment keep investors and shareholders interested in the long run?

Using the AlphaSense platform, we answer these pressing questions and more. 

A Fatal Future for AI Negligence

In the eyes of Mark Minevich, a UN advisor and co-chair of the AI for the Planet Alliance, companies who wait or disregard AI and genAI within their operations will quickly fall behind their competitors. 

He shared at this year’s Digital Enterprise Show (DES) that 2024 will be the year of “personalization, improved predictive markets, and supply chain productivity,” while 2025 will see the “scaling of current use cases.” He recognized that although there is considerable excitement about AI, the field is also experiencing substantial growth. “If you’re not an AI-driven company by 2025, you won’t matter,” he warned.

Why? Embracing AI is crucial for enhancing efficiency, personalization, and making data-driven decisions. 

It has the potential to greatly enhance productivity by automating mundane and repetitive tasks, freeing up valuable time for employees to focus on more complex and strategic activities. Further, it empowers organizations to make better-informed decisions based on data-driven insights.

In addition to boosting operational efficiency, AI enables the customization of products and services, allowing businesses to tailor their offerings to meet individual customer preferences. This level of personalization not only improves the overall customer experience but also fosters greater loyalty and engagement with the brand.

Of course, in addition to all the benefits of genAI, there are certain challenges to adoption—including adequately training employees, addressing biases in AI models, and safeguarding data privacy and security—all of which can be overcome. .

Leadership will have to be considerate that their usage of AI technology is ethical, prioritizes transparency, addresses biases in models, safeguards data privacy, and ensures that AI provides advantages to all stakeholders.

So what are the potential reapings for tech? Deloitte forecasts that almost all enterprise firms within the software sector will integrate generative AI into a portion of their products by 2024, with expected revenue growth nearing a $10 billion annual run rate by year’s end alone.

Further, as reported by Forge Global, the share of total fundraising attributed to AI rose from 12% in 2023 to 27% in the current year. The data indicates that the average funding round for AI companies has grown by 140% this year compared to last year, whereas non-AI companies have only seen a 10% increase.

Tech in a GenAI World

AI has taken center stage—in and outside of the tech industry.

Tony Kim, head of technology investing in BlackRock’s fundamental equities division, told Financial Times (FT), “when you look at technology outside of AI, there’s not that much happening,” said. Many [sub]-sectors are still in a recession. The only thing that has been really growing has been AI.”

What Kim gets at is that, for most tech companies, AI and genAI have certainly been saving graces in terms of earnings reports—but it’s not helping them reach levels of performance seen pre-COVID. According to recent financial data found in AlphaSense, most major tech firms are experiencing slower growth compared to previous years, and many smaller companies are actually contracting. Sentiment across most earnings transcripts shows a negative trend. 

Even subsectors swept up by the AI excitement, like semiconductors, continue to face revenue challenges:

“For the first half of the year, we announced $5.2 million in revenue, reflecting the expecting slowdown in traditional semiconductor revenue and $26.3 million in cash end of June 30, 2024, and $2.9 million investments in R&D projects and technology. As we expected, 2024 to be a transitional year driven, as mentioned, by a slowdown in traditional semiconductor demand. We demonstrated our ability to adapt to [an] ever-changing environment through investment across all subsidiaries in projects and technology that we expect to drive recurring revenue for the years to come.”

– WISeKey International Holding AG | Q2 2024 Earnings Call

Ultimately, traditional tech sectors like software, IT consulting, and semiconductor manufacturing are facing low demand and the aftermath of overexpansion (i.e., hiring frenzies and excess inventory buildup) resulting from the pandemic. Additionally, some companies have been impacted by the rise of AI, as clients with constrained budgets shift their investments.

“I think we are seeing a stabilization — things have stopped getting worse in those more macro-sensitive areas, and if [interest] rates go down then that will help,” Tony Wang, portfolio manager for T Rowe Price’s science and technology fund, told FT. “I feel like the idea that AI is the only thing that is working has been the case for the last two years. I’m not sure it will be the case for the next two.”

Outlook for AI in Big Tech?

Since this past summer, enthusiasm for AI-centric companies has cooled, leading many analysts to foresee a longer-term shift of investor interest away from major tech stocks and toward sectors like finance and industry.

Within the tech world, some specialists are hopeful for a redistribution of attention from leading AI firms to overlooked areas of the sector. While few expect the substantial growth rates Nvidia has seen in recent quarters, there are signs that some of the weaker parts of the tech industry are beginning to rebound.

How AI could be saving tech companies struggling to rake in revenue, in the meantime, is the technology’s ability to redistribute resources across an entire organization. For example, many of the job cut announcements from 2022 to 2024 have been followed by major investments in AI by these same companies, as they aim to shift resources. An increasing number of tech firms are also directly citing AI as a key factor in reassessing their workforce needs. 

The ongoing labor disruptions within the industry may signal further instability ahead, as predictions suggest that this technology will significantly alter the wider business environment in the coming years. For instance, in 2024, 457 tech companies have terminated nearly 140,000 employees, contributing to the 428,449 tech workers who were laid off in 2022 and 2023. The layoffs have affected a wide range of roles across both large tech corporations and smaller startups.

This includes tech mammoths Google and Amazon, who revealed extensive layoffs that will affect hundreds of employees across different divisions. These announcements follow previous multibillion dollar investments made by both companies in the AI startup Anthropic several months ago.

So is the AI the answer for tech companies to regain losses experienced by the COVID-19 pandemic? To put it simply: yes and no. It’s unclear whether major investments in the technology will hold over investor and shareholder interest in the long run. However, as companies strategize how to cut spending and save where they can, it’s evident that AI and genAI will play a key role in optimizing workforce efficiency—potentially at the expense of human workers. 

Keep a Pulse on AI Tech Conversations with AlphaSense

As genAI continues transforming the technology industry—and influencing trends and demands in other sectors—staying informed about new developments is imperative for companies seeking to maintain a competitive edge.

With AlphaSense, you can track the latest trends and insights in real time. Our platform provides access to a wealth of industry data, expert insights, and actionable intelligence, making it easy to stay informed on fast-moving industry developments.

Our library of 10,000+ leading content sources, purpose-built AI features, customizable dashboards and alerts, and seamless integration with your existing systems make AlphaSense the all-in-one tool you need to make informed, data-driven decisions with confidence.

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