FOMO And AI Anxiety In Davos

This is the most pessimistic I have seen the Davos crowd, and that’s worth paying attention to. This group is insanely well-informed. When they shift from optimistic to cautious and pessimistic, I look for what’s driving that sentiment. This quote caught my attention.

Satya Nadella – “Inflation adjusted, there is no economic growth in the world…the developed world may have negative economic growth.”

Nadella is optimistic about AI being a new input that spurs economic growth. In the past, he has said that technology is a deflationary force. This time, his message is that AI will create new value.

The overall message is mixed. Growth has stalled globally. We need a new input or value source to restart growth. AI is best positioned to be that input.

The AI story sounds like a light at the end of the tunnel, but few in the Davos crowd understand how AI will create value. Intelligent people like Nadella and NVIDIA’s CEO are saying the same thing. “AI drives revenues and is the differentiator businesses need to stay ahead of competitors.”

Companies like NVIDIA, OpenAI, Midjourney, Walmart, and Microsoft are proving the growth story. There are hundreds more companies with Generative AI products in the late stages of development that will ship in 3-9 months. Results are hard to argue with.

SAP’s CEO delivers a common message at Davos, “2024 is the year AI moves from discovery or experimentation to execution and delivery.” Shareholders are framing it a bit more ominously.

“The business has spent a lot on data and AI over the last 5-10 years. Where are returns reflected on the balance sheet? How much do you expect AI to drive revenue in 2024 and 2025? What will the impact be on margins?”

The reason so many are so pessimistic is that they don’t see the roadmap to achieving the same results. Worse, they don’t know who to ask for advice. There are just as many frauds in AI as legitimate experts. They know their businesses aren’t moving fast enough, and their investments are in similar jeopardy.

Big Tech And Big Worries

Even Big Tech is feeling vulnerable. Intel is struggling with its comeback story. Intel has pumped a lot of money into influencer marketing to get its AI story out and inject its products into the AI discussion. So far, that hasn’t worked because Intel’s competitors are telling a more believable story.

Qualcomm’s System on a Chip (SoC) is closer to shipping and about to get a boost from Windows supporting its chips. Apple uses similar ARM technology and runs machine learning workloads on devices, even on its watches. Both companies are a generation or two ahead of Intel.

NVIDIA announced a few tweaks to its GPUs to support the AI PC paradigm. The company’s message is, “If your PC has an NVIDIA GPU, it’s already an AI PC.”

Google is at an earlier phase of a similar problem. H&R Block announced a new Generative AI tax advisor feature. It’s a chatbot that answers questions using the tax company’s library of tax codes and expert content. The CEO said that customers couldn’t get answers from the company’s tax software, so they turned to Google. The tax advisor was implemented to change that.

Walmart and Amazon have shopping assistants designed to do the same thing. What’s difficult to believe is Walmart appears to have the better assistant (according to reviews) in the early leg of this race. Customers can access expert knowledge and get questions answered without leaving the app or website. Retail searches have some of the highest volumes and values.

Google’s search results appear to have gotten worse in 2023. It exacerbates the issues Google faces, from over-optimizing for ads and losing the community’s trust. Perplexity is making a solid case for its interface as a Google competitor. If it gets traction, more competition will follow.

Microsoft has integrated Copilot into Office and Windows. There are still trust issues to work through, but a lot of search traffic could be handled without leaving the app or desktop.

SAP integrated Joule with its existing document search, which will handle knowledge search activities, too. There’s a high-value search category I can see cloud providers taking on. Search for the best {enterprise app or tool} on Google, and you get a lot of marketing.

Searching for it on AWS, Azure, SAP HANA, IBM, and, yes, GCP could deliver customer reviews and ratings. Usage data and customer profiles could augment reviews, helping business leaders make more informed decisions.

Google is facing a slow decline from 1000 LLMs, taking 0.25% of searches here and 0.5% there.

Companies like Intel and Google face legitimate competitive threats from businesses that got to the AI goldmine first. The Davos crowd knows they face similar threats and aren’t as prepared as Big Tech companies that are struggling to respond.

Competition Is Back Because Cash Isn’t Cheap

Companies are being more intentional and thoughtful about what they build and how. Zero Percent Interest Policy (ZIRP) was a rising tide that lifted all ships. There was so much money that investors punished companies that didn’t invest in as many opportunities as possible. Budgets felt unlimited.

ZIRP has been rapidly replaced by higher for longer monetary policy. There’s a consensus that the US Federal Reserve will lower interest rates this year, but people inside the Fed have said that rate cuts will happen slowly.

Higher for longer doesn’t mean economic doom. Interest rates were at the same level they are now from 1967-1991, 1995-2001, and 2006-2007. Usually, an economic shock drives interest rates down quickly, but this time, a shock hasn’t materialized. The Fed is signaling that rate cuts will happen gradually, and persistent inflation could slow them even further. Higher for longer means business models that depend on easy access to capital or macroeconomic growth factors are in trouble.

Higher for longer also means competition is back, with clear winners and losers in each sector. The recent round of bank earnings paints a clear picture. Retail, Enterprise Software, Professional Services, and Big Tech are seeing the same trend.

The Davos crowd is rattled because most executive leaders weren’t in leadership roles the last time competition was this hot. It’s been over 12 years since the last period of heavy competition and even longer since the last period of tight monetary policy. I have heard CxOs and founders say it’s nice to have a few grey hairs in senior leadership right now.

Investors aren’t pressured to put their money into as many bets as possible. The strategy has moved back to best-in-class. In response, companies are winding down unprofitable business units and cutting unprofitable product lines.

I spent the end of 2022 and early 2023 telling people I coach to move their careers closer to revenue and core business lines. I advised CDOs and newly titled CAIOs to move their teams and initiatives closer to revenue growth, supporting the core, and preserving margins. Tracking and evangelizing the data team’s or individual impacts are imperative.

None of this is catastrophic unless the business has failed to prepare for these changes. Based on the current sentiment, it could be that many businesses are out of position and looking for options. Sam Altman said, “Status is a myth.” He believes that companies are either managing transformation to monetize technology or managing a slow decline.

Come on, man. I’m not even that blunt. Keep up that talk; CxOs will start drinking at the office again.

The Changing Talent And Hiring Picture

When revenue isn’t growing, cutting costs is the only way to please investors.