- Artificial intelligence took the world by storm in 2018, but its impact on the tech world is hard to measure.
- Because the technology is woven into everything a modern tech company does, it doesn't show up in a profit and loss statement, for example.
One of the biggest tech trends of the year is also one of the hardest to quantify.
Artificial intelligence has started to creep into almost presentation, product announcement and business plan from Silicon Valley in the last 12 months, and it's for a good reason. Artificial intelligence, when it works, can solve a lot of problems that were previously impossible.
"[AI] is one of those 'submarine trends,'" Mark Mahaney, an analyst at RBC, told Markets Insider. "It's impacting the tides, but it’s below the surface, so it's very hard to see it."
Even though a large number of companies have started working on their own AI technologies, its impact on the bottom line is almost impossible to see.
Google is a good example. As nearly every other flagship phone released this year used two camera lenses to create a blurry background in photos. Google used a single lens on its Pixel 2 phones and relied on its AI software to blur the backgrounds of photos. Even though AI enabled a core feature of one of the company's flagship products, it's hard to attribute what direct impact the AI systems had on sales of the phone.
In other companies, AI's impact is even less obvious. Netflix is using AI to decipher its users' preferences, and present interesting content based on only a few key indicators. It seems to be working, as the company's subscriber count continues to increase, but the cost of developing the recommendation engine isn't broken out in the company's financial statements, and it's hard to predict how good an AI-less recommendation engine could be.
"It's very hard to see that impact from a financial perspective; it's hard to find their line in the P&L that says this is artificial intelligence, but it's in there in terms of the expenses," Mahaney said. "And it should be in there in the form of more relevant and more effective services."
Perhaps then, the best way to quantify AI's impact on the tech world is to look at how much is being spent on research and development at the top tech companies.
Tech companies outperformed the general market by a wide margin in 2017, and Mahaney said that the huge investments tech companies make in developing new technologies is one of the biggest reasons for continued earnings and stock price growth.
"I've... been struck by how consistent the aggressive investment has been by these companies. All these companies have been spending aggressively on new areas of growth," Mahaney said.
That high level of investment in AI and other technology is likely to continue in 2018, which Mahaney says is a good indicator of the companies' future performance. The only thing that could really stop tech companies next year is a general rotation out of tech and into other areas, Mahaney said. "You know, famous last words — but they've been very consistent the last three years."