AI has barely begun, but there are already winners and losers
The artificial intelligence revolution may one day prove a boon for all mankind but for the moment it is creating winners and losers. The handful of US tech firms whose market value has risen by hundreds of billions of dollars are clearly the big winners. Companies that make the kit for data centres have also enjoyed a boom in their business and their share prices.
The losers are less obvious, but more broadly spread. Even those most bullish about the long-term benefits of AI admit that it will eliminate huge numbers of jobs, though most say (and perhaps believe) it will create more than it destroys. We are starting to see the first signs.
It is clear that some of the 6,000 job cuts announced by Microsoft recently were due to AI. Many of the cuts were in software engineering, which is unsurprising given that Microsoft says nearly a third of its code is already written by AI. Most tech experts say that AI will soon take over the bulk of routine software development and job adverts for software engineers in the US are at a five-year low.
But the picture is mixed. AI is also generating new jobs and in PwC's latest CEO survey more bosses said they had increased headcount because of AI than had cut it. At least one firm that saw AI as a replacement for human staff has had second thoughts. Sebastian Siemiatkowski, chief executive of 'buy now, pay later' firm Klarna, has been outspoken about the cost-saving potential of AI and introduced a hiring freeze last year. But he recently admitted that this had affected customer service and Klarna has started hiring again.
One area of the job market that has been hit by AI is graduate recruitment. Competition for graduate jobs has increased sharply in the past couple of years for a number of reasons. During the post-Covid economic bounce many companies, particularly in financial and professional services, went on a hiring spree. When activity slowed they found themselves overstaffed. At the same time, fewer employees were leaving for other jobs.
But recruiters say technology is also a factor behind the drop in graduate hiring, with employers believing they will need fewer junior staff because of AI. Competition for jobs is said to be particularly fierce in IT and consulting. There is hot demand for graduates with AI skills but those with more traditional technology backgrounds are finding things much tougher.
A wide range of companies are already seeing business suffer due to AI. Technology suppliers say that customers are shifting budgets towards AI investment and away from more conventional spending. According to a recent survey by Boston Consulting Group, companies are planning to fund increased spending on AI by reducing investment in traditional software areas and by extending the life of hardware. Some manufacturing companies are said to be delaying investment as they wait to see whether current systems will be overtaken by rapid advances in AI. Yet overall capital spending in the UK is still showing reasonable growth.
• Silicon Valley's techies are building the AI that could replace them
Shifting patterns of spending are also being felt in services. Sir Martin Sorrell, the veteran advertising mogul who now heads S4 Capital, says that clients are prioritising capital investment in AI over operating expenditure, such as marketing. This partly explains the 11 per cent fall in the company's first quarter revenues, he says.
Advertising is one field that is already being transformed by AI, which can dramatically reduce the cost of producing advertising text and images. Industry insiders say this is causing uncertainty among clients, prompting some to pull-back on placing new contracts.
It seems to be a similar story in professional services, including management consulting. US technology giant IBM has blamed slowing growth in its consulting arm on clients prioritising AI projects.
In the past couple of years there have been job cuts at many of the leading consultants including the Big Four accounting firms. McKinsey has reduced its workforce by more than a tenth in 18 months. There are other pressures on these firms and their leaders dismiss the idea that their business model is fundamentally challenged by AI. They point out that there has been huge growth in demand from clients for their advice on AI.
But consultants at other firms say that clients are showing the same uncertainty as they are over their marketing budgets. 'Clients are trying to figure out what AI means for them, how much they should be paying for what sort of advice from which consultants and how much they could do themselves,' said the head of one firm. At the same time, consultancy firms are investing heavily in AI capacity forcing them to look for savings elsewhere, including in headcount.
All the big consultancies have staffed up with AI expertise and are winning increasing amounts of AI-related work. But they are also losing some contracts to firms that are seen as specialists in AI, insiders say.
Fiona Czerniawska, chief executive of professional services consultancy Source Global Research, says some firms are making the mistake of emphasising to clients how much the use of AI can reduce their fees. This makes clients nervous about quality and reluctant to give them more business, she said. The more successful firms tell clients they can now do a better job, more quickly thanks to AI — and it can be a bit cheaper, too.
But she adds that even the best firms are losing some business as clients find that AI allows them to do more of the work themselves.
Company bosses who are seeing soft demand tend to blame acute geopolitical uncertainty, including the impossible to predict outcome of Donald Trump's tariff obsession. Yet many businesses are also suffering from the impact of AI.
The hope is that the uncertainty surrounding US trade policy will peak before long. But for the winners and losers from AI, the revolution has barely begun.
David Wighton, a former business editor of The Times, is a Dow Jones columnist
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