How an AI ‘gold rush’ is reviving the tech industry

The recent surge in generative artificial intelligence (AI) technology is boosting the tech industry after growth slowed across the sector earlier this year. 

As federal interest rates rose and the tech industry was coming off a pandemic-induced high, the once-vibrant sector suffered through lower earnings and layoffs throughout the year.

Ali Javaheri, an associate analyst at PitchBook, said there was an overall dropoff in venture capital funding and valuations of startups based on data the company tracked. 

“Basically, that was kind of just caused by the interest rate hike and subsequent liquidity crunch,” Javaheri said. 

But now, the boom in generative AI may be turning the tides for Silicon Valley as startups and industry giants compete to stay on the cutting edge. 

“In spite of that, though, AI and generative AI in particular, has kind of shown a lot of resilience and just been kind of a sort of oasis of funding activity compared to the broader tech sector,” Javaheri added. 

The buzz around generative AI, especially since the public launch of OpenAI’s ChatGPT tool in November, is leading to an influx of venture capital money in the industry. 

There have been $14.6 billion in venture capital deals in generative AI in the U.S. so far this year.

There was just $11 billion investments in all of 2021 and 2022 combined, according to data from PitchBook. 

On a global scale, there’s a similar trend. In 2023, there’s been $51.9 billion in venture capital deal activity in generative AI, compared to roughly $14 billion in the previous two years combined, according to PitchBook’s data. 

WedBush analyst Dan Ives called generative AI the most transformational tech trend since the World Wide Web in 1995.

“It’s been a massive change around tech spending from a very cautious environment earlier this year,” Ives said.

“We’re talking about a trillion dollars of incremental spend now coming into the tech sector over the next decade,” he added, noting that the push is being led by massive companies such as Microsoft and Google that have made AI a priority. 

“If you’re not spending on use cases, and your competitor is, you can be left behind in this AI gold rush,” he added. 

Microsoft partnered with OpenAI in a deal reportedly valued at $10 billion and has incorporated the ChatGPT tool into its own products for users. Google launched its ChatGPT rival tool, Bard, in February.

During a quarterly earnings call in July, AI was put forward as a clear focus for Google.

Sundar Pichai, CEO of Google parent company Alphabet, touted the “momentum” building around the technology and said “we are sharpening our focus as a company” in order to “take advantage of the AI opportunities ahead.” 

Meta, the parent company of Facebook, also followed with its open source Llama 2 large language model in July.

AI jobs rise as other tech gigs disappear

The tech sector saw widespread layoffs at companies of all sizes throughout 2023. Even giants such as Google, Meta and Microsoft laid off thousands of workers. The tech layoffs hit a peak of roughly 108,000 layoffs in January, according to data compiled by Trueup.io.

As of August, the number of layoffs trickled down to match where it was nearly a year ago, before the spike, based on Trueup.io’s data. 

As generative AI becomes more widely embraced, there’s also been a spike in jobs around the technology, according to data from Indeed Hiring Lab.

There was a 122 percent increase in postings for generative AI jobs in July compared to the same month last year and a 243 percent increase from two years ago, the data shows.

Other tech jobs, though, haven’t seen the same increase.

Job postings for software development are down roughly 57 percent as of Aug. 18 compared to the same day last year, according to Indeed. Postings for information design and documentation jobs are down roughly 50 percent over the same period. 

How AI could shape the broader job market

Policymakers and regulators have expressed concerns about new AI tech eliminating jobs.

Patrick Hall, an assistant teaching professor of decision sciences at the George Washington University School of Business, cautioned that some of the buzz around generative AI is “overhyped.”

Hall said similar concern emerged 10 years ago over advances in “computer vision,” technology that allows computers to identify people and objects.

But the newer AI tech based on large language models could be a “bit more real” and “impactful” mainly because they’re simpler to use, Hall said.

While other versions required users to understand coding languages, “basically anybody” can use the new wave tools, he said. 

“And that’s a big difference,” Hall said. 

Large language models are the type of AI that mimic human intelligence and power tools such as Bard and ChatGPT. 

“I think all of this stuff is overhyped, but I think the thing that sets the generative AI apart is the lower barrier to entry for consumers of the technology, whether that’s individual consumers or businesses,” Hall said.