AI Spending: The Questions Begin

Not long ago, a CEO only had to mention AI on an earnings call and investors would send the company’s stock soaring. Things have changed.

Where last year investors rewarded companies for spending big to get into the AI game, now they’re calling them out for it. Recently, share prices of major tech companies have been dinged, with investors expressing frustration that AI spending, now $200 billion a year by Big Tech firms alone, could be cutting into profits. “At least for now, investors are looking at AI budgets and saying, ‘Wait a second,’” says Chris Cantarella, global sector leader of the Software practice at Korn Ferry.

While no one disputes that AI is the future of business, people are starting to question when that future will arrive—and how profitable it will be. In the meantime, leaders must face the ever-present tension between long-term strategy and short-term performance—without being able to quantify how much AI contributes, or will contribute, to profitability, Cantarella says. In these early days of the implementation, adoption, and tracking of AI tools and usage, companies can’t yet project the technology’s contribution to revenue or profit at the enterprise level. “They can’t tell that story to investors right now,” says Cantarella.

Much of the sell-off in tech stocks, which last Wednesday prompted the Nasdaq’s worst trading day since October 2022, is the result of short-term investors taking money off the table. But long-term investors also have concerns about how much firms are investing in AI, says Chad Astmann, co-head of global investment management at Korn Ferry. At one tech company, for instance, second-quarter capital expenditure nearly doubled, to $13.2 billion from $7 billion in 2023, with AI accounting for much of the increase. While long-term tech investors are willing to pay a premium for innovation, Astmann says they don’t want to see “wasted capital” either. “They want to see more accountability for AI investments,” he says. 

Experts worry that companies are—on the one hand—pouring billions of dollars into AI technology, but—on the other—not spending nearly enough to train employees to use it. A recent study found that less than a quarter of employees are using their company’s AI-skills training programs, for instance. Other studies cast doubt on the impact of AI on productivity and the usefulness of AI tools to employees. “Companies that underinvest in the human component won’t get the returns they are hoping for out of AI,” says Korn Ferry senior client partner Maria Amato. 

Even the companies that eventually reap returns will have to be patient, says Deepali Vyas, global leader of the Applied Intelligence practice at Korn Ferry. “Returns won’t catch up to investments for at least another five or ten years,” she says. 

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