Investing in AI: A Leap of Faith

Published Date : 15-06-2025 

As AI continues to disrupt various industries, investors must recalibrate their expectations and become more patient with capital expenditures in this rapidly evolving technology. 

We know AI will be a disruptor to business, but no one knows exactly how — or how much it will cost. Even the poster children of the AI revolution — Musk, Altman, Zuckerberg — don’t pretend to know the answers to these questions. It’s almost impossible to determine the value of companies’ expenditure on a technology that makes radical advances weekly, the potential and risks of which are largely unknown.

Goldman Sachs predicts that global AI investment will reach $200 billion this year and may account for 2 per cent of US GDP by 2030, but efficiency gains will take years to emerge, and calculating a reliable return is already fraught with difficulty. This brings new and uncomfortable implications for investors.

First, shareholders may need to recalibrate their typical expectations about how and when capital expenditures yield returns. Take ad giant WPP, which is pouring money into AI. I have no idea whether its investment will appear prescient in the fullness of time or end up being a monumental waste of money, but given AI is still in its infancy, writing it off as a dud seems premature. Business history is littered with investments that were derided at the time, only to be vindicated years later.

Second, investors may need to get used to moonshots that miss. There will be expensive AI projects that ultimately fail. In mining, the market tolerates the sunk costs that come with drilling dry holes, accepting the commercial logic of making multiple exploratory bets to strike gold. It may need to apply the same mindset across other sectors. Businesses of any hue will have to start deploying speculative capex into AI to remain competitive. And the conundrum for companies and their investors isn’t just about whether capex will create more productive systems and processes — it’s also about judging what level of spend is justified. What happens if a company’s bespoke, gold-plated AI solution becomes freely available next year? Or if open-source models outperform in ways no one predicted — remember DeepSeek?

Third, in an era where AI is a defining factor in corporate success, the very basis of how investors value companies may also shift. For years, high-growth tech firms have been priced not on earnings (and certainly not on profit) but on potential, which, in some cases, bordered on the fantastical — but the sector has been an outlier. In almost all other industries, earnings growth and margin have been the bedrock of share prices.

In the future, we may see the tech valuation model gradually become the norm rather than the exception. Traditional sectors, including pharmaceutical companies, manufacturing giants, and insurers, are all increasingly AI-enabled. Whether it’s discovering the next blockbuster drug, building cars at half the cost, or modelling risk more accurately, AI will underpin the next competitive frontier. AI spend today will be critical to future success, but how do you assess its effectiveness if you don’t fully yet understand the scope of the tools you’re building? Investors, who’ve been used to taking leaps of faith with tech for years, may soon have to apply this approach elsewhere.

What’s true for companies is true for countries. Amid the fanfare and Jensen Huang photo ops of London Tech Week, the government unveiled its master plan to turn the southeast into “the new Silicon Valley”. If investors looked closely at the AI capex of WPP — a FTSE 100 company with a strong balance sheet — the expenditure of the fiscally fragile UK will certainly attract enormous scrutiny.

As uninspiring as this government’s economic strategy may be, investors in the UK need to set fair expectations on its AI spend, just as they must with businesses, including the timeline for investment paying off. If it never does, I predict that capex misfires will increasingly be tolerated as simply the cost of doing business in an AI-driven economy, rather than being treated as cardinal sins. In an age of AI exploration, capital will learn to become more patient. 

Frequently Asked Questions (FAQS): 

Q: What is the predicted global AI investment for this year?

A: Goldman Sachs predicts that global AI investment will reach $200 billion this year.

Q: Why do investors need to recalibrate their expectations for AI investments?

A: Investors need to recalibrate their expectations because AI is still in its infancy, and it's difficult to determine the value of companies’ expenditures on a rapidly evolving technology.

Q: How might the valuation of companies shift in an AI-driven economy?

A: The tech valuation model, which prices companies based on potential rather than earnings, may become the norm in other industries as AI becomes a defining factor in corporate success.

Q: What is the government's plan for AI investment in the UK?

A: The UK government has unveiled a master plan to turn the southeast into ‘the new Silicon Valley’ during London Tech Week, which includes significant AI investment.

Q: How should investors approach AI capex in the UK?

A: Investors in the UK need to set fair expectations on AI spend, including the timeline for investment paying off, and be prepared to tolerate capex misfires as the cost of doing business in an AI-driven economy. 

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