AI is moving fast. Official Ireland is not

Welcome back to the late 1990s. The Celtic Tiger is in full swing. You connect to the internet via a buzzing dial-up modem on your home phone line and use rudimentary search engines such as Ask Jeeves. And in the world of finance the dot-com boom is in full swing, with money flooding into new companies hoping to profit from what we are calling the “world wide web.” In 2000 the dot-com bubble burst, stock markets collapsed and there was a rolling wave of liquidations as investors started to look at profitability rather than hope value. Companies such as Pets.com – a pioneer of ecommerce that sold pet supplies online – found they had an idea but no business model and went bust. Looking at the AI boom now recalls that chaotic period. AI may be coming at us at a faster pace, but the large investment and the hope value of the stock market feels similar. Like the advent of the internet, nobody disputes that artificial intelligence is going to have a fundamental impact on all our lives. It is just that no one is quite sure yet exactly what it will look like. Senior business executives talk of little else, but many are still trying to work out what it will mean for their companies. And like back in 2000, there are questions about the amounts of money being spent. This week Uber’s president and chief operating officer Andrew Macdonald said it is getting harder to justify its AI costs because there was no way to show a link between AI spend and any meaningful increase in useful features. Uber spent an eye-watering $3.4 billion on research last year, much of it AI related. To help fund this it cut its new hiring. This story of hiring being cut to help fund new investment in AI is repeated across the tech sector, including in the recent Meta announcement. But the scale of the use of AI to actually replace jobs is still disputed territory – there is evidence of it in back-end processes in big companies managing orders and areas of admin and support. And some areas of financial services do look ripe for disruption. But where AI will replace jobs and where it will enhance them is far from clear, as is the balance between jobs that will disappear and new types of work that will be created. Perhaps the turn of the century and the markets “partying like it was 1999′′ gives us some clues on what may happen next. Stretched valuations on financial markets create a vulnerability that has been hiding in plain sight for a while now. The large investments by the big players in AI infrastructure is based on the hope of future profitability coming from higher productivity – doing more with less. This productivity boost will surely take hold just as did the transformational impact of the internet that disrupted many businesses and spawned many more. But the market is now hugely vulnerable to disappointment if companies like Uber take time to work through how its application can lead to higher productivity and profits. And there is another parallel. In 1999 a flood of flotations saw founders and early investors cash in as shares soared after their listings – before those who held on lost out in the subsequent fall. Eircom shareholders who bought into the float in summer 1999 will recognise the story. It took another 15 years for the tech-heavy Nasdaq index of US shares to reach the same level again. Now it is more than five times higher. Big market launches are again on the agenda. Plans for flotations by Elon Musk’s Space X, OpenAI and Anthropic are well advanced and will see the big name founders cash in at large stock market valuations. OpenAI, reports suggest, could be valued at $1 trillion. The hope value of AI is one of the key factors keeping the market buoyant and creating a market for these floats. The other is optimism that there will be a deal to end the Gulf conflict and the Strait of Hormuz will reopen. US president Donald Trump is again talking of just such a deal this weekend. Meanwhile, financial markets are getting warning signals from another old friend – the Government bond market – where long-term interest rates are heading higher, due to concerns about rising inflation and the high level of State borrowings. Normally this would send shares lower. But for now the financial markets push through each and every concern. Perhaps this will continue. But the path forward is getting narrower and the risks are clear. There are a few key issues here for Ireland. The economy is vulnerable to disruption to the IT sector from AI or any market upheaval. And the State is heavily reliant for tax revenue and employment on a few big companies who are at the heart of the AI race – it matters to Ireland how Microsoft and Meta perform and how they position themselves, for example, and how Intel performs in the microchip market that powers this technology. Listen to any recent graduate and you will also realise that the jobs market is getting tighter, especially for new entrants, and it is harder to get a first job. How much of this is directly due to AI is questionable. New research from the London School of Economics even suggests that the working from home trend may be a more influential factor in slow hiring of graduates. But there is no doubt that big tech is slowing hiring as it saves cash for AI investment. In time, new jobs will be created too, but the pace at which AI is arriving suggests that there is going to be some upheaval in the transition. There is a huge education and training agenda here, which the Government urgently needs to address, as well as important decisions about industrial policy. Speaking to some cyber security experts this week about AI threats, I was struck by their reference to the new world of “AI speed” and the challenges for traditional human-driven processes to keep up. The economy has underlying strengths that give some reasons for hope, but AI is going to sweep quickly across the jobs market affecting employment and jobs fundamentally, even if precisely how remains unclear. Regarding the required pace of response, or positioning for the risks and opportunities, the signs are that the Coalition still does not get it.