AI: Is Reality Setting In?

Companies talk big about artificial intelligence, but new US data shows only 5% use it to produce or deliver goods.

As first-quarter earnings are announced, investors will be listening carefully for hints that companies are reining in expectations of what they can do with AI—and how soon they can do it.

Discussion of AI on earnings calls has jumped since the launch of ChatGPT last fall. In the fourth quarter of 2023, mentions of the technology on earnings calls of S&P 500 companies hit the second-highest level in ten years. But the tone may be a bit different in this latest earnings period, says Chris Cantarella, global sector leader of the Software practice at Korn Ferry, who expects leaders to temper their comments as reality sets in around the applications, cost, and risks of AI. “Leaders got out ahead of their skis a little bit,” he says. Indeed, the US Census Bureau recently found that just 5.4% of companies use AI to produce goods or deliver services. Interactions with customers, data-security risks, and cost were among the top concerns with deploying AI.

Cantarella says the data represents the collision between “the hyperbole of the upside of AI and fear of the downside.” For the first time since the technology’s introduction, firms are bringing a measure of financial rigor to AI investments. “CFOs are having to stop some projects that aren’t accretive,” says Cantarella.

According to market-data and -analysis provider FactSet, S&P 500 companies that cited AI on earnings calls have grown share prices by 12% more over the past year than those that did not. What investors will be listening for on earnings calls is how leaders will balance investing in AI for future growth and profitability versus cutting costs to maintain it today. Deepali Vyas, global head of the FinTech, Payments, and Crypto practice at Korn Ferry, says this may mean focusing on smaller-scale projects with greater return potential than on mass deployments that will take years to pay off.

To be sure, the dollar amounts firms spent on AI—estimated at about $90 billion a year—are still significant. For her part, Vyas notes that while firms are being more cautious about enterprise-level applications and deployment, employees are getting more comfortable with AI. A Pew Research Center study found that 20% of employed Americans used ChatGPT for work in February, up from 8% a year earlier. Equipping the right people with the right AI could be the difference between a productivity increase of "10% or 70%,” she says.

Paul Dinan, global technology market advisory leader at Korn Ferry, characterizes firms’ outlook toward AI as evolving from “chasing ideas” to “capturing benefits.” As with earlier transformative technologies like search engines and social media, Dinan says people overestimated the near-term impact of AI. “But don’t be disappointed in the apparent lack of progress,” he says. “Change needs a long runway.”


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