How Microsoft and Nvidia bet correctly to leapfrog Apple

Under the leadership of Jensen Huang, Nvidia has seen a significant rise in its share price. Last month, Nvidia briefly became the world's richest company, surpassing Microsoft, which had previously overtaken Apple. This news was met with applause at a tech industry event in Copenhagen. However, Nvidia is now back in second place after a drop in its share price, with a combined value of $3 trillion compared to Microsoft's $3. 4 trillion. Two key factors have driven these two US tech giants to such heights: AI and foresight. Microsoft began investing in OpenAI, the creator of the popular AI chatbot ChatGPT, back in 2019. Meanwhile, Nvidia's CEO, Jensen Huang, directed the company towards AI chip development long before generative AI became mainstream. Both companies made a long-term bet on the current AI boom, and it has paid off, leaving Apple trailing behind. But the question remains: how long will this dominance last? This year's London Tech Week, an annual event for the UK tech scene, was heavily focused on AI. The letters 'AI' were prominently displayed on every stand and mentioned in every speech. Anne Boden, the founder of Starling Bank, a significant fintech disruptor, was particularly excited. She remarked, 'We thought we knew who the winners and losers were in tech, but with AI, we are throwing the dice again. ' She believes that the AI revolution is reshaping the tech sector and is eager to dive back in. During the same week, I attended Founders Forum, an annual gathering of around 250 high-level entrepreneurs and investors. The event is confidential, but it's safe to say that much of the discussion was also centered around AI. A few days later, a headline in the Financial Times caught my attention. It claimed that more than half of the stocks in Citigroup's 'AI winners basket' had fallen in value in 2024. This rapid change highlights the volatility of the tech sector. Anne Boden noted that AI has completely shaken up the tech industry. Susannah Streeter, head of money and markets at Hargreaves Lansdown, warned that the high valuations of tech companies could lead to significant drops in share prices if they make mistakes. She compared the current situation to the dot-com bubble, where over-enthusiasm led to disappointment. In 2023, it seemed that anything with 'AI' in its name was guaranteed to attract substantial funding. However, investors and clients are becoming more discerning about what truly constitutes AI. Saurabh Dayal, who identifies AI projects for his investment firm, mentioned that he often has to clarify that certain projects are not genuinely AI. This growing awareness is making people more selective. Speaking to the Financial Times, Citi's Stuart Kaiser noted that while AI remains a significant theme in the stock market, there is increased awareness that current generative AI products do not always live up to their hype. Issues such as misinformation, bias, copyright infringements, and bizarre content have plagued some AI products. Early AI-enabled devices like the Humane Pin have also received poor reviews. Chris Weston, chief digital and information officer at Jumar, observed that the market for generative AI is maturing. Early experiments set high expectations, but many unexpected outcomes have tempered enthusiasm. Businesses value the trust and comfort their clients have in their services, and introducing ungovernable chatbots is a step too far for many. Tech analyst Paolo Pescatore agrees that AI firms are under pressure to deliver on their promises. He believes the AI bubble will burst if one of the major companies fails to show meaningful growth from AI. However, he does not foresee this happening soon. Companies are ramping up their AI activities, increasing spending, and claiming early successes. ChatGPT is the AI app that has captured the public's attention the most. There is another reason why the AI bubble might burst, unrelated to product quality or market value: the planet's capacity to sustain it. A study published last year predicted that the AI industry could consume as much energy as a country by 2027 if growth continues at its current rate. Prof Kate Crawford from the University of Southern California expressed concerns about the electricity, energy, and water required to power AI. Dr Sasha Luccioni from Hugging Face echoed these concerns, stating that there is not enough renewable energy to power AI at present, with most of it being fueled by oil and gas. The hope is that AI could help identify sustainability solutions, such as nuclear fusion, but this has not yet materialized. In the meantime, AI systems are putting a significant strain on already overburdened energy grids. With so much uncertainty, it is difficult to predict the future. However, for now, Apple faces a tough challenge in catching up with Microsoft and Nvidia in the AI race.