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Economic Upside of Generative AI
Economic Upside of Generative AI

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The Generative era started in late 2023 after the ChatGPT moment. The evolution of Artificial Intelligence however started with the Diagnostic era which was defined by the introduction of machine learning and later moved to the predictive era which gave the ability to make forecasts about operations to consumer behavior. GenAI has undergone rapid advancement in the past 18 months. It represents the third major tech cycle in the past 50 years following Personal Computers in 1981 and the Internet in 1994. It is considered to be another General-Purpose Technology that will transform many industries.

Economic Upside:

According to Bank of America, enterprise AI implementations are moving from pilots to production, which could boost S&P operating margins by 200 basis points (bps) over the next five years, equivalent to approximately $55 billion in cost savings, annually.

Surveyed analysts expect AI to drive margin expansion for 23 of the 25 industry groups globally, with implementations potentially boosting both semis and software margins by around five percent.

Another important thing to note is that most past technologies have taken many years to become mainstream. For example, Radio was invented in 1890 but became commercially available only in 1920. Similarly, the TCP Standardization protocol came in 1983, but the Internet became mainstream only in 1994.

Looking at the kind of adoption of Chatgpt, experts are saying that it might take just 5-10 years for GenAI to become mainstream and transform the global economy.

 

 

According to Accenture, Companies can unlock an additional $10.3 trillion in economic value by 2038 by adopting responsible, people-centric approaches to Gen AI.

According to Bank of America’s report, AI capex could reach $1 trillion+ over the next several years. Private investment in AI companies reached $42.5 billion in 2023, up 445% compared to 2016, but only 23% of the $21.8 billion private investment in companies specifically focused on GenAI flowed to app developers. Thousands of AI startups got funded to the tune of >1 Mn $ between 2015 to 2023. Many of these startups have received unicorn status. These startups will show their potential momentum in the next few years and could disrupt many sectors.

 

Sources: Bank of America Institute. [https://rcr.ml.com/Archive/12738036.html?q=o7biy23hSuHAtgynTQQe8g&__gda__=1728664226_6f6faac26e39d16ad32da455f81f7ed4]


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Madhumay
Deputy Manager - Research

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