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AI: The ROI Runway Could Be Long Outside the Tech Sector

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Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#11

Post by jagged-chisel »

HardCodedBias wrote: post #2

The premise is flawed. "The first chart below shows that so far there are no signs of profit margins rising outside the tech sector. This is ultimately what we are waiting for, because the value of AI companies today rests entirely on the promise that margins in the S&P 493 will eventually climb." This is absolutely not necessary. The bull case is that AI will bring great efficiencies. The surplus profits from those…

> The surplus profits from those efficiencies could easily be …

… usurped by the tech companies?

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#12

Post by ares623 »

degamad wrote: post #10
beepbooptheory wrote: post #5

Earlier quoted context omitted.

What does this look like for any given company? Which margins will you be crushed by for not adopting?

Hypothetical: Pepsi starts using AI in some magical way that allows them to increase their margins. This allows them to reduce prices while increasing profits. Price-sensitive customers switch from Coca Cola products to Pepsi products. Coca Cola loses some market share, reducing economies of scale, and reducing margins, thus reducing profits. As the cycle repeats, Pepsi moves to dominate the market, and Coca Cola is…

Ah yes, magical hypotheticals

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#13

Post by cheschire »

sublinear wrote: post #9

I don't understand why anyone insists that this needs more time. None of what we've seen in the past few years is new tech. It's more money and hardware thrown at the problem than ever before for diminishing returns. The market has clearly spoken. Knowing what you're doing is much more valuable than just the doing. That still requires humans. This AI winter has already begun.

Ehh, it’s a late AI summer at best. You still need the economic leaves to finish falling off the trees before you can get to the true start of winter.

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#14

Post by mikgp »

hyperpape wrote: post #3

Maybe there's an argument that a lack of rising profit margins in non-tech companies is a bad sign for AI, but this article doesn't make it. Why can't we have a red-queen's race where non-tech companies are implementing AI, but it's not increasing the total profits of those sectors, just meeting rising customer demands/fighting over the share of existing profits? (Never mind that if you look at that chart, profit mar…

> Why can't we have a red-queen's race where non-tech companies are implementing AI, but it's not increasing the total profits of those sectors, just meeting rising customer demands/fighting over the share of existing profits?

But then if this happens - all of the stock market has risen in the promise of AI. If AI eats profits instead of grows them, then the economy shrinks right? So maybe that’s worse? That there is no productivity increase?

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#15

Post by rnagulapalle »

The slower adoption in non-tech sectors isn't just cultural lag - the integration surface is genuinely harder. Legacy ERP systems, compliance review cycles for what data the model can touch, and change management overhead all front-load costs before any efficiency shows up in margins.

I've seen this in payment/API systems: the actual model integration takes weeks, but getting legal and security sign-off on the data pipeline takes months. Non-tech companies face the same pattern but with less internal tooling to manage it.

The margin signal might also be appearing at the wrong level. Gains in these sectors often show up first as headcount flatness or throughput improvements before they hit EBITDA. Measuring at the P&L level on a 2-year horizon is probably too early and too coarse - the operational metrics are moving, the accounting just hasn't caught up yet.

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#16

Post by Animats »

> If token costs converge toward zero for most AI use cases...

In the real world, token costs seem to be going up, as early stage pricing at a loss gives way to pricing that generates revenue.

Compute costs might go down a little over the next five years, but there's nothing coming along in hardware that leads to huge reductions in price. NVidia says don't expect better price/performance before 2030.

The models keep getting bigger, and people put loops around them which iterate, burning tokens.

Where is this cost reduction coming from?

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#17

Post by kazinator »

There is no reason to believe the ROI runway is not long inside the tech sector either. I mean, you cannot base that on claims made by the AI sub-sector of the tech sector; of course they are going to claim nothing other than that eating their dogfood is great ROI with a short runway.

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#18

Post by DrewADesign »

therobots927 wrote: post #7
HardCodedBias wrote: post #2

The premise is flawed. "The first chart below shows that so far there are no signs of profit margins rising outside the tech sector. This is ultimately what we are waiting for, because the value of AI companies today rests entirely on the promise that margins in the S&P 493 will eventually climb." This is absolutely not necessary. The bull case is that AI will bring great efficiencies. The surplus profits from those…

Well those efficiency gains have to show up somewhere. It would imply that consumers / customers of these companies are receiving cheaper or higher value services / goods. Thats at odds with current inflation trends to say the least.

Even aside from inflation, the prospect of efficiency-borne gains meaningfully benefiting the consumer rather than fattening corporate profit margins, frankly, seems like magical thinking. I’ve seen no evidence that our current corporate culture is capable of it (for any longer than it takes to dominate some market.)

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#19

Post by fc417fc802 »

Animats wrote: post #16

> If token costs converge toward zero for most AI use cases... In the real world, token costs seem to be going up, as early stage pricing at a loss gives way to pricing that generates revenue. Compute costs might go down a little over the next five years, but there's nothing coming along in hardware that leads to huge reductions in price. NVidia says don't expect better price/performance before 2030. The models keep…

I don't expect any of the third party openrouter providers sell tokens at a loss. Agreed that increasing model size could drive token prices up however so far there's been a very strong trend in the opposite direction with smaller models becoming increasingly capable thanks to advances in theory and implementation.

Edit: A glaring omission on my part there is that growth of aggregate industry demand for tokens has the potential to outpace increases in supply provided by new datacenters buildouts. So tokens certainly could go up depending on how things play out.

Re: AI: The ROI Runway Could Be Long Outside the Tech Sector

#20

Post by vitally3643 »

beepbooptheory wrote: post #5
HardCodedBias wrote: post #2

The premise is flawed. "The first chart below shows that so far there are no signs of profit margins rising outside the tech sector. This is ultimately what we are waiting for, because the value of AI companies today rests entirely on the promise that margins in the S&P 493 will eventually climb." This is absolutely not necessary. The bull case is that AI will bring great efficiencies. The surplus profits from those…

What does this look like for any given company? Which margins will you be crushed by for not adopting?

Labor, obviously. That's where all the money in a business goes: paying pesky human employees.

If your employees can suddenly magically do more work with the same pay, that's free money (for you). You can pay fewer employees, or pay them less by threatening to replace them with the magic robot.

The magical thinking version of this is that your productivity gains magically translate into more customers and more sales for the same input cost and labor. The free money is really free because you're a magical special snowflake company and every consumer will want your brand of magic machine outputs and not the other guy's. Where does all this money come from? Do those extra customers even exist? Who cares!

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