AI needs $6 trillion in annual revenue by 2031 to justify the data centre boom, Bain says

They talk a bit about where the AI companies are supposed to get their revenue from. I’d like to see these analyses go a step further and talk about how those AI customers are supposed to come up with that money as well.

For example, the article suggests $1T from enterprise productivity tooling. A quick Google suggests the global enterprise productivity tooling market is only worth about $0.1T right now.

Do we really expect all the world’s corporations to suddenly up their annual spend by 1,000% on average? Why?

To put this into perspective, healthcare, real estate and banking each earn ~$1.5T in revenue annually. This is REVENUE, not profit which is obviously lower than the revenue in every industry. I fail to understand how AI can achieve $6T in annual revenue when the TAM for healthcare and banking is a quarter of that in the US.

I think what's lost on the general public who mainly thinks AI is ChatGPT, is that these companies are gunning for knowledge worker salaries. That by itself is ~$30T/year globally. Nothing else justifies the infra spend. Data center investment is a bet that they will be able to virtualize knowledge workers in the next 5 years.

Warehouse and factory labor is the next largest market for AI/robotics, at about $7T/year globally.

The bubble question is really about the target year. Will these companies start on a trajectory where AI begins eating these massive markets before investors lose faith?

To me it looks like one of these is true:

(1) this is indeed a bubble, and AI will turn into a useful tool integrated into everything but fall short of expectations. We'll see some significant multiple compression in the share prices of these core AI companies, but they'll remain good investments in the long term.

(2) this is a real transformation, the investment was worth it, and these companies will earn massive revenue while causing Depression-era levels of unemployment (24% if half of knowledge workers and factory/warehouse workers can get jobs).

Basically, the revenue required to justify the infra spend requires that they start eating existing industries, because that's certainly not going to come from ChatGPT/Claude subscriptions.

I think the statement is the wrong one.

I think their claim they can make, assuming their evidence is true, is

"AI needs $6T in annual revenue for every investment in AI to be profitable"

I think some people will make a lot of money and more people will lose a lot of money.

Most of those investing know this, they are taking the risk of losing a lot to attempt to be one of the ones that make a lot.

A lot of early internet tech companies went bust, a few became extremely successful. At the time I would see high valuations and ask "Yes, but how do they make money". Most of those with an unclear answer to that question are not around now. The ones who had a tangible plan to make money, even if they were making a loss at the time, tended to survive.

There is a lot of Dumb money going into AI, when that is the dumb money of wealthy individuals, I am more than happy to let them receive no return while paying for infrastructure. There's a problem when the dumb money comes from dumb individuals who are routing money from others who do not have a say in how it gets invested.

That is not an AI specific problem, that is a problem where people can make decisions where others carry the risk without their consent. That is the problem that needs to be met head on.

To avoid this becoming a “tail wags the dog” scenario, folks who have money would need to spend it. We told people for 20 years to “learn to code”. Technology is, outside of healthcare, the leading profession for upward economic mobility.

What happens when the adoption of AI destroys the middle 60% of the bell curve of programmers and technologists? How will the middle class of people spend money on products/services if they don’t have a job?

We can’t both create wealth and destroy jobs with nothing to replace them.

America has little to no manufacturing base.

Technology and finance has been its differentiator economically speaking for job creation. Both are at risk from AI adoption. Businesses have to sell to someone, and at the moment it’s not clear — if the stated goals of revenue are to be believed, how that can happen.

Then again, investments in AI are 1-2 % of worldwide GDP I think, if you think that this technology can probably increase efficiency at least a couple of times in anything that has to do with information processing it doesn't seem so ridiculous. The electric grid, railroads and other large-scale infrastructure required similar amount of investments, though they took much longer. I guess the main risk here is the speed at which everyone races to capture this market as unlike electricity or railroads this revolution is entirely digital so competition happens nearly on a global scale and everything is much faster. That is probably the main risk, going this fast will definitely cause overshoots in one or the other direction.

This is like sitting in 1997, confidently assuming all future Internet services would run on one of Sun, Compaq/HP, DEC, or SGI, and projecting costs accordingly.