Like the Spanish Inquisition, no one expects it. Its chief weapons are fear, surprise, ruthless efficiency, and a night out with the neighbors.
The next market collapse will not be unexpected, and that may be hastening its arrival. The recent 10% fall in ServiceNow (NOW) after earnings is the latest troubling sign.
I mention ServiceNow because they’ve gone all-in on helping clients build AI agent applications, turning their Business Process Automation (BPA) database technology into an AI platform. The numbers remain great, with net income up 47% and revenue up 22% in the latest quarter. But you’re paying 115 times earnings, and 15 times revenue, to own it, even after its recent fall, so there’s that.
It could be this is just the pause that refreshes, a move down after being overbought. But it’s also an indication of just how nervous this market is that I’m mentioning it. Expecting the Spanish Inquisition means it never arrives.
The Bigger Problem
The bigger problem is that the Large Language Models (LLMs) big tech is bragging about just aren’t working. Turning them into “AI Agents,” as ServiceNow has been doing, hasn’t helped, either. By now systems like ChatGPT were supposed to be writing code for us, and while they are writing code it’s buggier than a piece of meat left on your porch for three days.
It turns out that Garbage In, Garbage Out, when applied to garbage code, just yields more garbage. In addition to making stuff up, the LLMs are now getting “compounding errors,” little errors turning into big errors as the made-up stuff is used as an input. Throwing more data at the problem, and throwing more computing power at the problem, just makes the problem worse.
There are other approaches to AI, like neuro-symbolic AI, that could help fix things. But as Gary Marcus notes these alternative approaches still aren’t getting much funding. LLMs will have to hit a wall before people turn away, he thinks.
That’s not going to happen while Meta, Microsoft, and Google keep drawing enormous piles of cash from customers for renting the cloud capacity used by LLMs. This won’t happen while ChatGPT revenues keep going to the Moon, never mind that there are no profits.
The problem is that earnings releases look backwards. What a smart investor wants is to be there the moment when the crowd realizes the King is wearing no clothes. That hasn’t happened yet, but this kid is saying beware, beware, beware of the naked man.
