How the economic downturn affects the AI ​​sector

Amid the economic slowdown, recession fears and inflation hitting the stock market, the future of AI software vendors is uncertain.

Tech companies big and small alike are feeling the effects. In July, Microsoft and the parent company of Google, Alphabet Corporation. , missed their targets in their quarterly financial reports. Alphabet posted its slowest quarterly growth in two years, while Microsoft failed to meet Wall Street expectations for its income and revenue.

in Mayan independent vendor of AI DataRobot It laid off about 7% of its workforce even though the seller raised $300 million last year.

Argo AI, the autonomous car startup that has a partnership with Volkswagen and Ford, laid off about 150 employees in July.

AI and contraction

The difference between this economic downturn and the previous recession and bear markets is that Artificial intelligence and automation It is now an integral part of the economy. Many companies see AI as a tool to survive the slowdown, said Kashyap Kumbila, an analyst at RPA2AI Research.

“In the event of a slowdown, organizations are looking to improve cost and increase efficiency, and AI and automation can help do both,” he said.

This does not mean that the AI ​​sector will not be affected, but most organizations already have plans to combat the slowdown.

Companies, technology vendors, and venture capitalists all have their own operating guides and strategies for slowing down.

Kashyap KumbilaAnalyst, RPA2AI Research

“Companies, technology vendors, and venture capitalists all have their own playbooks and strategies to slow down,” Compella said.

Many companies are beginning to cut their budgets for the next year. This will likely rein in new AI projects, hiring, and technology purchases.

“For any large organization, their AI portfolio consists of projects at different stages — from the lab stage to the deployment readiness stage,” Compella said. “Experimental AI projects will be behind us now.”

Impact on sellers

The effect of an economic slowdown on sellers depends on the type of seller. Some big tech companies, including Google, have frozen non-essential hiring.

However, some sellers have not yet felt the impact of the economic slowdown.

Pecan AI, a resource that provides a deep learning platform designed to build predictive models for enterprises, has raised nearly $100 million in the past year. The Israel-based company raised $66 million in its latest funding round in February.

“We feel that there is a change of sorts; everyone is feeling it,” said Noam Breezes, co-founder and chief technology officer of Pecan. “Right now, this does not apply to pecans.”

The seller said he’s already budgeted his plans for this year, so he doesn’t expect the economic downturn to slow hiring or research and development efforts.

It is not surprising that some sellers have not yet experienced the impact of the economic slowdown, especially if their fiscal year starts later or if they have already signed contracts with companies, Compella said.

“But what happens after those contracts run their course?” He completed. “So even though companies have budgeted already, they see these backlogs looming.”

Venture investors feel it too

Compilla said venture capitalists are watching the market closely and changing the process they use to determine what type of companies they want to invest in. The process is now much stricter and longer.

“It takes much longer to cut checks,” Compella said.

usually when Venture capitalists want to invest in a startupThey look at the product, potential customers, and how much the startup has collected in the past. After examining all these factors, they give the startup a term sheet that states how much they plan to invest and how much money is at risk. The process usually takes about a few weeks, but it takes months now, which means that many startups aren’t able to raise donations as quickly as they’d like.

a pile of money
Venture capitalists will get stricter when considering the AI ​​companies they want to invest in.

Private equity firm IVP invests heavily in technology companies, including artificial intelligence vendors.

The company, which has invested in more than 400 companies since 1980, said its investment philosophy for artificial intelligence has not changed despite changing economic markets. IVP said it will continue to invest in the best new AI products and teams that find strong customer bases and commercial adoption.

“While the public markets … have changed in the past few months, our conviction is that the leading AI companies of the next decade are being built today,” said Karthik Ramakrishnan, IVP Partner.

Hope for the future

With organizations making changes due to the economic downturn, some AI projects will be paused, yet there is hope for many AI projects.

“A year to a year and a half in the AI ​​world,” Compella said.

The next generation of AI technologies will emerge in the next few years, even in turbulent economic times.

“There is already a greater enthusiasm coming out of the slack for the adoption of next-generation AI technologies,” like large language modelsThat shows no sign of slowing down in terms of technological progress, said Compella.

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