Steve Young urges caution to avert an AI disaster of 'DotCom bust' proportions

As a Cambridge University Professor, Young sold companies to Google, Microsoft and Apple and worked for the latter on its voice recognition technology. Now he seriously fears for the major players in the field of artificial intelligence and those who fall under their spell.

An adviser on such issues to Amadeus Capital Partners, co-founded by Anne Glover and Hermann Hauser, Young believes the gravy train might be about to crash off the tracks.

He told me: “There is no doubt in my mind that we are into bubble territory. I was particularly taken by OpenAI’s announcement in September that it will invest $300 billion in Oracle cloud services from 2027 following which Oracle’s stock price increased by 43 per cent making Larry Ellison $100bn richer.

“No matter that OpenAI does not have $300bin; no matter that Oracle could not service this demand level; and no matter that even if it could, it does not have access to the 4.5 gigawatts of power that it would need to run it. So I am definitely seeing Tulips.

“I think there are strong parallels here between AI and the Dotcom boom/bust situation. Many investors are now piling into AI without really understanding what they are investing in. Many AI company valuations are bonkers and many AI companies will go bust within a year as the client companies they serve fail to realise the promised gains.

“Tech stock valuations will drop substantially - sending a shockwave across markets resulting in a major 'correction' just as happened 25 years ago.

“In the DotCom bust, some companies survived and once the internet started to deliver its promise ie by around 2005, the survivors prospered (eg Google, Amazon, Netflix, Microsoft). One of the key lessons I took from the DotCom bust is the importance of distinguishing between speculative hype and sustainable growth.

“I think AI will follow a similar pattern. By 2030 or so, we will have figured out what works and what doesn’t. AI will be deployed across a range of industries bringing genuine savings and efficiencies.

“For example, customer service will be almost totally automated; all large-scale industrial processes such as chemicals, steel and cement will be controlled by AI ramping up quality and cutting costs; and robots will start to replace humans in many repetitive manual jobs.

“Closer to home, no-one will be immune to the inevitable market correction and the impact it will have on investment. The consequences can be mitigated by careful selection of AI companies to nurture avoiding speculative business plans which lack strong scientific underpinning, keeping tight control over costs, and ensuring that investors are going to stay with the company through multiple funding rounds. Fortunately, I think that much of the Cambridge ecosystem follows these principles already.

“So I am not sure what lifebelts we can put in place. As in the DotCom boom, it will be critical for investors to keep a good store of reserve cash since retail inflows will dry up for a while and the demand for bridging loans will soar. The UK Government can also help by becoming an enthusiastic early adopter of AI-based services.”

Steve Young is a Venture Partner at Amadeus Capital Partners in its early stage, deep tech investment team having joined in 2023. He has collaborated with Amadeus for over 20 years and supports the team in identifying and assessing promising investment opportunities and advising on portfolio companies as they scale and commercialise.

Emeritus Professor of Information Engineering at Cambridge University, his main research interests are in artificial intelligence and machine learning, especially the application of speech and language processing in conversational agents.

He was Head of the School of Technology from 2001 to 2004 and Senior Pro-Vice Chancellor from 2009 to 2015. He was a founder and VP Engineering at Entropic Inc acquired by Microsoft in 1999 and founder of VocalIQ Ltd acquired by Apple in 2015. From 2015 to 2019 he was a Senior Member of Technical Staff in the Siri Development team in Cambridge.