The UK Government Has Pulled The Plug On AI
The UK Government Has Pulled The Plug On AI
The bubble is starting to pop.
Have you noticed how every company is claiming they have some new-found AI technology that apparently makes them superior, only for said AI to be utterly hollow and disappointing? Me too, and it’s half the reason why I am so sceptical of the technology. But, for the past few years, this disparity between promise and delivery hasn’t stopped governments, businesses, and investors from going all-in on AI. That is, until a few days ago, when the UK’s new Labour government pulled the plug on £1.3 billion worth of governmental investment in the UK AI industry. While this might sound like a minor story in the AI world, it might be the first domino to fall and foreshadow the upcoming burst of the AI industry.
Let’s start with where these funds came from. In the final months of his leadership, UK Prime Minister Rishi Sunak announced a £1.3 billion investment in the UK AI industry, with £800 million going to a supercomputer at Edinburgh University and £500 million for AI research. This was intended to stimulate the UK economy, which has stalled since Brexit and Covid. The idea was that AI is an up-and-coming technology, and if the UK could become a hub for AI technology, it would significantly boost UK productivity, foreign investment in the UK, and the UK’s GDP.
Sounds like a great plan. Right?
So, why did the newly appointed Labour government cancel this funding?
They have said they have made this decision because they are “taking difficult and necessary spending decisions across all departments in the face of billions of pounds of unfunded commitments” and that “This is essential to restore economic stability and deliver our national mission for growth.”
This is very revealing, particularly in the context of Starmer’s Labour government, compared to the past Conservative government.
You see, the Conservative Party became overly focused on controlling the narrative and pandering to the media and extreme back-bench politicians in order to keep control. As such, much of their policies focused on optics rather than results. Just look at their Rwanda bill. In contrast, Starmer won the general election partly by positioning his party as results-driven. They are happy to have less extravagant or even less favourable optics to create better results. With this in mind, the reasons given for cancelling this AI funding point to the horrific economic rot and hollow promises at the core of the technology.
What do I mean by this? Well, AI development is slowing down and becoming more expensive, it’s not profitable, and there is a vast AI stock bubble.
Let’s start with the development issue. You need to feed AI more training data to make it more accurate. However, as AI becomes more capable, it takes exponentially more data to achieve the same increase in performance. This means it also takes exponentially more energy to create better AI, as AI training uses exponentially more energy as the data training volume increases. This is creating diminishing returns in AI development and is why AI companies like OpenAI have recently slowed down updates to their products, and said updates offer far smaller increases in performance than they used to. But this means there is an upper limit to how good AI can actually be, as there is only so much data and energy available for training. It also means that, for AI to get even slightly better than it already is, requires a huge, potentially unviable, capital expenditure.
That brings me to profit, as AI is still far from a profitable product. Take OpenAI. They are the world’s most popular AI company and have by far the largest revenue and investment of any AI company on the planet. Yet, despite this, the company has spent over $7 billion on AI training and 1.5 billion on staffing, and running its main product, ChatGPT, costs over $700,000 daily! As such, by the end of the year, they are set to make an operational loss of £5 billion and could actually face bankruptcy. Simply put, AI is not a profitable technology.
This brings me to the third point. Even though AI is hitting a development ceiling and is far from profitable, misinformed and manipulative investors see it as a revolutionary technology and are pouring billions into any stock linked with AI. Tesla is a great example of this. In 2023, Tesla made a gross profit of $13.4 billion, and its current valuation at the time was $535.98 billion. But Toyota, which has technology that could eclipse Tesla, including its own gigacasting, AI self-driving systems (though marketed as a driver assist system), and affordable super-long-range solid-state batteries, and a gross profit of $61.699 billion, is only valued at $331.30 billion. These numbers are the smoking gun of an AI bubble. Companies are being valued way beyond where they should be because of AI hype, and when this hype dies down, the bubble will burst, and billions upon billions of market value and investment will be lost. It’s not just me saying that; a recent poll by Bank of America found that 40% of fund managers think that AI-related stocks are in a bubble.
This is why Starmer’s government pulled the plug on this huge AI investment. They know that while it has great optics in our current climate of AI, it won’t deliver the economic growth it promises. In fact, making such a precarious industry a core part of the UK economy through funding like this could be incredibly damaging when the AI bubble does eventually burst.
But this is actually a huge moment. This funding being pulled is the first time a major institution (i.e. investment bank or government) has turned its back on AI. It’s the first time a body so large has identified the problem with how the AI industry is currently operating and chosen to walk away before things get ugly. As such, this could be the first domino to fall, foreshadowing the AI bubble bursting.
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Sources: BBC, Will Lockett, Will Lockett, Planet Earth & Beyond