A 740 Percent Increase in What?

A year ago, a CEO expressing skepticism about AI would have sunk the firm’s stock price. Now, analysts and investors can’t stop wondering if firms might be better off taking a more measured approach. 

A major theme of third-quarter earnings calls, which wrap up this week, has been that everyone is concerned about an AI bubble. According to data compiled from S&P 500 companies, AI was mentioned on 306 earnings calls during the third quarter, an increase of 4.8% over Q2’s 292 calls. What’s more telling, however—at least in terms of how analysts and investors are judging AI costs versus returns—is that questions about an AI bubble increased 740% between the second and third quarters. Put another way, investors are growing as concerned about losing money on AI as they are excited about making money from it.  

Chad Astmann, co-head of global investment management at Korn Ferry, says the increased chatter about an AI bubble shows that leaders are mirroring the more sober mindset of investors. “The frenzy around AI has abated significantly since just a year ago,” says Astmann. “CEOs are on safer ground being cautious and not being perceived by investors as missing the wave.” 

The statistics tell the story. Most AI projects fail to scale past the pilot stage, and of the ones that do, only 20% generate a meaningful return on investment. Despite the hype around AI agents, one recent report says more than 40% of projects involving them will fail by 2027. For all but the largest companies, there are few concrete use cases to point to where AI is generating real business impact, says Jamen Graves, global leader of CEO and enterprise leadership development at Korn Ferry. “Most CEOs who have been investing in AI are coming to realize that the returns are likely going to take considerably longer than they initially predicted,” he says. “They are rethinking their investment strategy and adjusting their expectations and forecasts accordingly.” 

For leaders, being more vocal about a possible AI bubble is a way to manage investor expectations while also showing that they are carefully balancing investment with driving profitability. As Astmann notes, an AI bubble is different than an overall financial bubble, and with markets still strong and most companies performing well, leaders feel comfortable backing away from what he terms a “frothy period” for AI investment. “CEOs and CFOs feel comfortable discussing the AI bubble without being seen as irresponsibly ignoring the next great tech advance,” he says. 

For investors, Graves says, it’s not clear how spending billions of dollars on AI to save an employee a few hours of work per week generates value, especially because it’s also not clear how employees are using that extra time. Generating those returns requires firms and leaders to do the more granular work of changing roles, teams, and workflows to incorporate AI, says Bryan Ackermann, head of AI strategy and transformation at Korn Ferry. “Most companies aren’t doing that yet,” he says. 

Learn more about Korn Ferry’s AI in the Workplace capabilities.

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