#24: Half way through the year, checking in on my predictions.

The promised quarterly update on 2024 predictions, still on track.

Jul 30, 2024

As promised, I am checking in on my predictions from the start of the year. On this warm and humid Chicago day, as I write this, this often repeated passage comes to mind.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." - Charles Dickens: A Tale of Two Cities

On January 3, 2024, I published my 2024 predictions on LinkedIN. If you haven't read them, here is a link. As I had written then, I focussed on talent, data, productization or vertical focus and infrastructure to make my bets. I had observed that these were directly affected by capital and that capital deployment had already started in a very big way. Now, capital flow is rotating with clear indications that it is moving from mega cap tech stocks to the mid cap Russell type stocks. The tumult continues unabated in the macro economic sense.

My basis for these predictions was a framework I developed over the last Thanksgiving break as mentioned in essay #10, “Navigating the AI Labyrinth: Silicon Valley's Modern Odyssey”.

It appears that I continue to be on the right path, many of my predictions are now established. None have been refuted.

So let's get into it.

Prediction 1 - The AI fight started in 2023 will get entrenched - On one side we will have a subset of Big Tech who have influence or indirect control over “Proprietary AI” and on the other sides will be “Open AI” fueled by aspirants, venture capital and those in Big Tech who missed the first wave. In 2024, the first movers will maintain their advantage primarily because of early talent sequestration.

H1 Outlook: Established.

This one is now established and no longer a prediction. And, it is now entering the political sphere with leaders taking strong points of view on ostensible moves by large incumbents towards regulatory capture. For example, Republican Vice Presidential candidate JD Vance, no stranger to venture capital, open source nuances or tactics that connote regulatory capture has come out strongly in favor of open source and dismantling the big tech hegemony. In the EU, “policymakers agreed to free almost all open-source AI from the toughest oversight — as long as the technology is not used in outlawed practices, such as wholesale facial recognition. In the U.K., however, officials lean toward restricting the most advanced AI to a handful of countries.”

It is a time of strange bedfellows.

Meta’s Zuckerberg has grabbed the mantle amongst big tech to make a full throated case for open source as the best way forward comparing his Llama models to Unix.

The fight is clear, the sides are clear. We just need to see who wins and this will not be a mere technical argument. We know the “best” technology doesn't always win.

Prediction 2 - AI will accelerate the already torrid Data Center growth further driving energy demand. Given the dependence on specialized chips and requirement for dedicated use for model training 2024 will see growth in Data Center usage dedicated to AI use by hyper scalers as well as other companies. This will be an incremental demand in 2024 on top of the forecasted demand for data centers by hyperscalers and others leading into 2023. REITs that specialize in this class of real estate should see huge upside.

H1 Outlook. Established, as previously discussed.

We are now in the throes of this prediction extending into reality.

TD Cowen reports that approximately 2.1GW of data center leases were signed in just 90 days, driven primarily by AI requirements. This represents over 20% of the entire U.S. third-party data center market, which currently stands at about 10GW. Record-breaking growth projections are coming through with growth rates potentially exceeding 80% annualized based on the recent 90-day period. Major tech companies are still leading this demand surge. Google signed a 600MW deal in Texas, while Microsoft secured deals of 420MW in Leesburg, VA, 360MW in Dallas, and 300MW in Chicago.

To consolidate on the incumbent advantage hyperscalers are now pre-leasing capacity 24-36 months ahead of facility delivery, up from the previous 12-18 month window. This reflects the growing scarcity of data center capacity and the urgency to secure future compute resources. As a result, enterprises have started pre-leasing capacity up to six months ahead of facility delivery, a previously unseen behavior possibly to avoid getting crowded out by the hyperscalers.

Data center operators can now charge premiums for capacity coming online within 24 months due to scarcity. Supply chain issues persist, with lead times for critical equipment like generators and transformers extending to 130 weeks (~2.5 years).

AI training deployments are less location/latency sensitive than traditional cloud deployments, leading to an "anywhere" data center deal trend. For example, NVIDIA has indicated willingness to lease capacity in any market due to limited availability in preferred locations.

This is now a long term trend extended as far into the future as 2030. I think I called this one.

Prediction 3 - Consequently, energy use will also see incremental demand on top of the previously forecasted demand for hyperscalers and EVs. This will further push demand for sustainable energy generation, efficiency in generation using traditional sources, efficiency in distribution and electrification use cases at point of use. Regulation will ramp up.

H1 Outlook. Established, as previously discussed.

More evidence is mounting for this conclusion. Starting with the money;* firms like Blackstone are extending beyond just real estate to become investors in sustainable energy. Separately, power is one of the most volatile commodities. The WSJ reports that “global trading volumes for electricity futures jumped by 35% between 2019 and 2023, data from a McKinsey study showed. Some regions have seen much bigger increases, with Nordic volumes surging 14-fold and those in the U.K. tripling.” Microsoft cements this trend by announcing for its Swedish region that “the region, which includes a presence in Gävle, Sandviken and Staffanstorp, is the first hyperscale cloud region to use the Vattenfall 24/7 solution in a commercial product to deliver 100 percent renewable energy.”

Beyond wall street, in countries and localities around the world pushback from traditional energy users is beginning to spread. Ireland, home to more than 80 data centers and is one of Europe’s most active markets, is beginning to show the strains and policy debates have broken out on further growth. The results are stark, it is being reported that “AWS is reportedly restricting the number of resources users can access in Ireland amid ongoing concerns about the amount of power consumed by the nation’s data centers.” In the US, concern is growing in places like Granbury Texas. Time Magazine reported earlier this year that “Granbury is one of many towns across the U.S. feeling the negative impacts of bitcoin mining, an energy-intensive process that powers and protects the cryptocurrency. Those impacts include carbon and noise pollution, and increased costs on consumers’ utility bills”. Add the high intensity AI computing Data Centers on top of this and residents have become concerned in all data center intensive regions across the country.

Policy makers, undoubtedly influenced by policy bodies such as the IEA, are starting to respond. Most recently the IEA said that they “expect global electricity consumption of data centres, cryptocurrencies and artificial intelligence to range between 620-1 050 TWh in 2026, with our base case for demand at just over 800 TWh – up from 460 TWh in 2022. This corresponds to an additional 160 TWh up to 590 TWh of electricity demand in 2026 compared to 2022, roughly equivalent to adding at least one Sweden or at most one Germany”.

Prediction 4 - Talent fragmentation will exacerbate - Individualism especially derived from professional experiences of the last three years will resist corporate apathy and back to office regimes.
Specifically, the legion of pandemic era graduates will push against accepted work norms from the “before times” leading to a different trajectory in workplace norms, the orthodoxy will continue to push back.
On top of that, hiring excesses during the pandemic rebound and the layoffs recently eroded trust in corporate regimes.
Due to this struggle, talent will fragment between the two extremes, the most capable folks will be drawn to a more effective middle path which will become clear in 2024 and as is typical, will most likely be pioneered by smaller companies and startups.
In addition the most entrepreneurial folks and those with access to capital will further remove themselves from the talent pool available to corporations because of the “Silver Tsunami”. The silver tsunami metaphor describes the aging population, particularly baby boomers reaching retirement age. In this wealth transfer, people will increasingly choose small and medium enterprises or entrepreneurship.

H1 outlook - Unclear, we will need to wait and see.

Nothing has changed, for the most part. As I said in the Q1 update - “So far the trend of layoffs and force reduction barring the AI space has not let up. We will have to wait and see what unemployment (which improved in the most recent report), inflation and rate cuts do to the economy throughout the year. Then there are the elections.”

The only change I see is that the impact of macro economic factors, especially non zero interest environment has shifted the capital flows and profitability has become paramount, this is affecting overall white collar employment growth, so we aren't yet seeing the fragmentation of talent given lack of options.

Prediction 5 - Democratization of capital will accelerate. In 2024, the industry and platforms in support of equity crowdfunding catalyzed by the JOBS act of 2012 will hit prime time. The top income + Net-worth decile (or more?) Americans will qualify as “accredited investors” and will deploy even more capital through these platforms taking liquidity away from traditional channels. Combined with the prediction 4 above, this will become a powerful force in 2024.

H1 outlook - Trend picking up, we will need to wait and see.

Consolidation and expansion in this pace indicates that this prediction is beginning to take hold. Take for example US based Republic’s acquisition of UK based Seedr. Seedrs was the first ever regulated equity crowdfunding business in the world and has pushed £1.5bn of investment through the platform during its history, even acting as retail investment platform for digital bank Revolut, now a unicorn. The platform was also the first to introduce a secondary marketplace. It was acquired by Republic which is a leading US fintech company that allows people to invest in private market equity, debt or crypto offerings and has almost one ($1) billion dollars under management through its private asset management practice. Also, after two years of seeking regulatory approval, Wefunder has officially received the green light to operate its investment crowdfunding services within the European Union. This marks Wefunder’s first time expanding outside of the United States.

Regulatory action also indicates that this trend is big enough where regulators feel the need to intervene. Take for example the Securities and Exchange Commission (SEC) proposed amendments to expand the definition of a "qualified client" under the Investment Advisers Act. Or the SEC adopted new rules aimed at enhancing protections for private fund investors. It demonstrates ongoing regulatory attention to private investment vehicles, which are often accessed by accredited investors.

Prediction 6 - Even though talent will fragment, unit productivity will significantly improve in jobs requiring knowledge work through extensive AI enabled support tools. Technology platforms will take the lead in 2024 especially @Salesforce, @Microsoft, and possibly also @IBM among others. They will use the old technique of bundling and offering these “assistants” or “intern-bots” as features. Meanwhile, small and medium-sized businesses will choose newer, more affordable unbundled technology stacks with significant impact.
The nature of the technology market will start fundamentally changing with the center of gravity moving to the post Cloud, Mobile, Social Media era. We will have new leaders, new economics and possibly different distribution ecosystems. We should see the new landscape clarified by the end of the year.

H1 Outlook - Established and growing.

As predicted a slew of special purpose AI interns are merging within the large deployed bases of the companies mentioned in the prediction. For example, Salesforce in collaboration with IBM has introduced generative AI capabilities in its Sales Cloud and Service Cloud, aiming to transform how sales and service teams operate. These tools, such as Sales GPT and Service GPT, are designed to auto-generate customer emails, call summaries, and account updates, thereby significantly boosting productivity and personalizing customer interactions. They have been integrating IBM's AI and data capabilities with Salesforce's generative AI tools to drive productivity and enhance customer experiences. IBM's consulting services, along with Salesforce's platforms like Sales Cloud and Service Cloud, aim to create a comprehensive AI-powered solution for businesses. Elsewhere, Microsoft has launched Copilot for Sales, an AI assistant that integrates with Salesforce Sales Cloud and Microsoft Dynamics 365 Sales. This tool is designed to bring AI and CRM updates across productivity workflows, helping sales teams work more efficiently by summarizing key points from multiple email threads and providing insights into sales data.

As predicted a slew of specialized and independent solutions are emerging in competition offering unbundled solutions. For example, Forethought for customer support, Viz.ai for healthcare, Vic.ai for Accounting, Harvey.Ai for legal work.

Expect a lot more with the amount of capital being directed in this sector. A specific example of this is DocketAI. According to Techcrunch, in August 2023, Arjun Pillai formerly of ZoomInfo launched DocketAI, a virtual sales engineer. The company has raised a $15 million Series A led by Mayfield and Foundation Capital. The problem they try to solve is ‘that sales engineers, who are technical sales experts, were getting pulled into various conversations with prospective buyers — including some that didn’t require their expertise. A lot of account executives ask them complicated but rather routine questions.” “DocketAI helps non-technical salespeople obtain fast answers to technical questions and receive assistance with drafting requests for proposals (RFPs) and other technical documents.”

Prediction 7 - The traditional stacks that underpinned the digital ecosystem since the start of this century start unraveling. Interest and intent based audiences will get tainted by GenAI this year. The content produced, how it is consumed and what a user is, will all become suspect before the end of the year with plainly evident outcomes. According to @The Economist, in 2024 countries with more than half the world’s population - over four billion people - will send citizens to the polls. Everything that AI can do to achieve this audience tainting and content manipulation to influence opinion will hit primetime in these elections. This is a rare confluence of events and this technology’s potential will be too irresistible for it not to be exploited.

H1 Outlook - Established but now getting weird

Since the last update elections in India, UK, France and Mexico happened and whereas GenAI was undoubtedly used in content creation no spectacular malfeasance was reported on. Possibly because authorities have wisened up to the possibilities and took measures to curb it. However we will see in November what tricks might appear in the US. By year end we will reflect on what was tried, what was mitigated and what becomes the norm in electoral processes across the world.

However, GenAI as an integral tool in the toolkit of electoral campaigns is now here to stay. Consider for example what applications such as broadcasting could have on electioneering. The WSJ reports that technologists at NBC used old NBC broadcasts, generative AI and AI voice synthesis technology and trained it to speak like Al Michaels—the indelible voice of Super Bowls, World Series, and of course the Olympics. During the Games, Artificial Al will potentially deliver millions of bespoke recaps of Olympic coverage on Peacock. Take that and apply it to election coverage or campaigning.

This year is not over, far from it.

Prediction 8 - Governments will get increasingly involved in ensuring that they do not miss the AI boom while at the same time ensuring that it doesn't negatively affect sovereignty or governance. This will be a very passive aggressive year for policy, regulation and governance; countries and various nation blocs will appear to be cooperating while they simultaneously push parochial advantage. This will negatively affect free markets globally. In combination with Prediction 7, this will be a potent mix.

H1 - Trending as predicted, slowly but mostly correct.

Last year I wrote extensively about this trend in essay #11, “AI's Rulebook Emerges: Deciphering Regulatory Realms and Policy Pioneers”.

Since the last update not much has changed. Policy development and affairs of government are slow paced, further confounded by the election year. We will keep watching.

Prediction 9 - AI related litigation will start establishing legal precedent forming legal guardrails around AI use from intellectual property to privacy. By the end of 2024, there will be established case law and rulings that will start forming the regulatory bedrock for the evolution of this industry.

H1 - Trending as predicted, slowly but mostly correct.

There isn't a whole lot more I can say, given my recent essay #16, “Judging a New Technology”. I am watching this space, you should too.

Sources and References:

The Sophophile Writes

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