Those trying to pick AI winners should remember the dotcom days

Receive free Technology sector updates

We’ll send you a myFT Daily Digest email rounding up the latest Technology sector news every morning.

The writer is president of international, Bank of America

It is always worth stepping back to assess where we stand on the historical arc of technological advancement. As we enter the age of artificial intelligence, there are important parallels with the dotcom boom, which first heralded the internet age.

Now, as then, an abundance of capital (this time around driven by a decade of ultra-low interest rates) has been directed towards technological innovation by venture capital firms, corporations and sovereign wealth funds. This mirrors the over-investment in start-ups that was so common during the dotcom era.

The impact of this surplus capital on innovation may only be felt over time: simply put, we know it will change the world, but we don’t yet know how. One central physical manifestation of innovation during the late 1990s, the iPhone, only appeared years later. AI, made tangible to the public through ChatGPT, still only offers a glimpse into the future possibilities of this latest phase of amply-funded technology.  

Will the parallels continue? The dotcom era went through a significant retrenchment ahead of the next period of growth. That feels unlikely this time around. However, while we could be about to enter a ‘super disrupter’ phase of global corporate life, the full benefits may remain tantalisingly just beyond reach as interest rates rise and the tide of free capital recedes. 

At Bank of America’s recent breakthrough technology summit, there was general consensus that this may be the decade that ‘moonshot’ technologies arrive at speed and faster than anticipated, with huge potential to augment human intelligence. This could help people working in IT programming, service industries and research become much more effective at their jobs rather than replacing them.

It is also worth considering the potential for faster development in natural language processing, revolutionising gene expression, organic chemistry, and tracing RNA structure. Admittedly, this is against the backdrop of a technology that can make mistakes and where responsibility remains with the user for model accuracy, acceptable use, explainability and traceability. 

For large corporations, there is a significant challenge in how they consume this technology. Without the right representation at senior and board level, businesses may not know the right questions to ask, let alone what steps to take. 

John Chambers, former CEO of Cisco and now one of the world’s most successful investors in disruptive technologies, has this sobering message. “You ought to ask each one of your companies: what is your AI strategy today? Where is it going? How has it changed?,” he advises. “If they don’t have good answers, I wouldn’t invest in them”. If history is any guide, we should expect market valuations to start favouring those already advanced in their AI thinking. Consolidation around the companies who are fastest to innovate is inevitable. 

Governments will need to have a clear vision of how to both regulate and capitalise on technology’s opportunities and disruptive power. Will we see more following the lead of the UAE, the first country to appoint a dedicated Minister of AI?

Critically, however, many of the most exciting new technologies will still fail. In the present higher interest rate environment, it’s important we fail fast and keep directing scarce global capital to probable winners. This will require a change of mindset and a willingness to have faith in the true pioneers in our midst. Commercialising new technology is an expensive exercise. Innovations on the cusp of breakthrough, from climate tech to material tech, are at risk of being left without the funding they need.  

Amara’s law states that we tend to overestimate the impact of technologies in the short run and underestimate them in the long run. In the case of AI it may be the other way around. In the long run, the journey through to the new “super disrupter” phase, with its unknown challenges and unintended consequences, will present many opportunities to generate both huge wins and huge losses. Providers of capital will need to stay the course. Those who stood ready and able to invest in the field back at the beginning of the internet age believed it would be transformative and yet they still found it difficult to pick winners.

Never have so many genuinely transformational and investable technology breakthroughs been within reach. But the days of almost unlimited capital are behind us. Fortunes will be made, but also, inevitably, lost. We need to stand ready for a bumpy ride ahead.