HSBC CEO warns companies spending heavily on AI may not reap benefits soon

HSBC Holdings Plc’s chief executive, Georges Elhedery, has sounded a warning about the surge in corporate spending on artificial-intelligence (AI) infrastructure, noting that the scale of investment is outpacing the ability of firms to generate meaningful profits from it in the near term.

Elhedery made these remarks during the Global Financial Leaders’ Investment Summit in Hong Kong. 

Tech officials weigh in on AI development 

The warning comes as HSBC is cutting costs and overhauling its business model under Elhedery. The bank has stated that it aims to enhance returns and expand its business through its global footprint.

The HSBC chief executive has launched a comprehensive restructuring of the Asia-focused bank since assuming the role in September. This involves restructuring HSBC into “eastern” and “western” divisions, closing major parts of its investment banking operations, and combining two of its three primary units.

In July, Morgan Stanley, a global financial services firm, shared its prediction concerning AI development. The company mentioned that over the next five years, global data center capacity is expected to increase six times the current capacity, with costs for data centers and their hardware projected to escalate to $3 trillion by the end of 2028.

Additionally, a report from McKinsey, dated April this year, highlighted that data centers intended for AI tasks will require approximately $5.2 trillion in investments to meet demand by 2030. On the other hand, those supporting traditional IT systems are anticipated to require approximately $1.5 trillion. 

Following these predictions, the HSBC CEO noted that consumers are not yet ready to pay these expenses. Consequently, this decision may impact business operations, as they will likely proceed at a slower pace since productivity gains will not be realized immediately.

“These trends take around five years to develop, so we will likely see real revenue benefits and a willingness to pay for it later than what investors expect,” he said. 

Meanwhile, William Ford, the chairman and CEO of General Atlantic, also commented on the situation. Speaking at the same panel, Ford agreed that individuals will establish entirely new industries and uses over time. This will enhance efficiency, according to the CEO. However, he argued that this move is a long-term process that could take approximately 10 to 20 years to complete.

Ford says AI will become very common at some point

Big tech companies have recently shared their forecasts for capital spending in their 2025 fiscal year, expecting the total to surpass $380 billion. Analysts acknowledged that these forecasts were higher than the previously shared predictions for 2024. Examples of these tech giants include Microsoft, Meta, Amazon, and Alphabet.

OpenAI initially created a buzz about AI when it launched ChatGPT in November 2022. Since then, the tech company has shifted its focus towards technology. To support this claim, reports from credible sources indicate that OpenAI has secured infrastructure deals worth approximately $1 trillion with key partners, including Nvidia, Oracle, and Broadcom.  

Regarding these AI investments, Ford stated that investing in this sector demonstrates an understanding of the long-term impacts of AI. He also acknowledged that while this field will require a considerable amount of funds at the outset, it is essential to start investing now to capitalize on future opportunities.

When reporters asked about the challenges of investing in this sector, Ford cautioned about the existence of issues like “misallocation of capital, destruction, overvaluation… [and] irrational exuberance,” particularly in the early stages.

Apart from these challenges, General Atlantic’s CEO also pointed out that it is difficult to identify which firm will succeed or fail at the moment.

Ford argued that AI will become as common as electricity or railroads are in the present-day world. According to him, these inventions had a substantial impact on the economy over time, but it was hard to notice their importance in their early days. 

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