Could the AI industry be pausing for breath? Possibly. The dynamics of AI product development are changing as the market matures and developers refine their approach to align with the current state of the business.
Although no one is predicting a dramatic drop in spending, there are a few signs developers and other vendors are looking hard at where their money should be spent. Earlier this week, Noelle Walsh, who oversees Microsoft’s cloud operations, said the company “may strategically pace our plans.” As Business Insider noted, that’s “shocking” for a business “that's been constantly kicking and screaming for more cloud capacity and more Nvidia graphics processing units.”
Essentially, Walsh chalked up the move to growing pains. “[Any] significant new endeavor at this size and scale requires agility and refinement as we learn and grow with our customers,” she said.
Much of Microsoft’s move is about data center capacity, not product development. As BI notes, “trillions” of investment dollars are tied to the development of generative AI. That means any kind of change in plans raises eyebrows. In Microsoft’s case, spending has been impacted by Redmond’s changing relationship with OpenAI along with an oversupply of data-center capacity.
‘Not Backing Away’
BI believes Microsoft is recalibrating, as opposed to retreating. One analyst said much of its investment has been focused on the land and facilities needed to house AI’s necessary hardware. For a company to walk away from facilities arrangements at this stage isn’t unusual, the analyst said. Microsoft may simply be delaying some spending while the industry’s realities catch up with the company’s ambitions.
Microsoft “probably isn't backing away from AI much but is becoming more strategic about where and how it invests,” BI said. Certainly, some of its spending plans are meant to support “inference,” which refers to how today’s AI models operate in products like Microsoft Copilot and AI agents. Previously, much of the investment went to AI training. “Microsoft's pivot may be more a sign of maturity than retreat,” BI said.
And it’s not as if spending overall has declined. Just the opposite: In 2024, spending on AI rocketed from $2.3 billion to $13.8 billion, said Menlo Ventures. That’s “a clear signal that enterprises are shifting from experimentation to execution.”
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News & Notes
An increasing number of employees are turning to AI rather than their managers when they need guidance at work. Research by Resume.ai found that as trust in AI grows, traditional approaches to leadership may be on the decline. More than two-thirds of workers, 67%, prefer to consult AI over their managers in many instances, the survey said. Some 52% say AI answers questions more quickly than managers, while 46% believe AI simply knows more.
About 37% use AI to examine their own performance reviews and aid career growth. At the same time, 29% ask AI for constructive criticism or feedback on their own work. The generation that most prefers AI over managers are Millennials. More than 61% of them use the technology rather than their manager either every day or “often.” Only 31% of Baby Boomers take the same approach.
Younger workers like new technology. That’s not surprising. But it’s interesting to learn more than half of young employees say new-to-market tech could influence their job choices. That number is sure to rise as technology continues to advance. According to Unmind, the tendency of users to experiment with AI is rising, especially as workers seek to change the flow of their workday. About 75% of knowledge workers have integrated AI solutions into their work, Microsoft reported.
Pay no attention to the man behind the curtain. The founder of an “AI-powered” shopping app was indicted for defrauding investors after authorities learned that people, not processors, were doing its work.
“Nate” was positioned as a shopping app that allowed users to make purchases from any ecommerce site through a “universal” checkout experience. However, it was really operated by “hundreds of human contractors” in the Philippines, TechCrunch reported.
The company raised $50 million in venture funding with its claim to conduct transactions without any humans involved. In reality, the app included basically no automation, said the U.S. Department of Justice. According to the indictment, investors suffered a “near total” loss after the company ran out of money in early 2023.
