A report from Goldman Sachs has raised doubts about the potential return on investments in artificial intelligence (AI) by tech companies.

What Happened: According to the report, companies are projected to invest over $1 trillion in AI. However, Goldman Sachs' report expresses apprehension about the returns on this colossal investment.

The report underscores the high costs associated with AI technology, including data centers, power grids, and AI chips, and questions whether these costs can be justified by the returns.

"AI technology is exceptionally expensive, and to justify those costs, the technology must be able to solve complex problems, which it isn't designed to do," Jim Covello, the head of global equity research at Goldman Sachs, said in the report.

Covello also criticized the tech industry's assumption that AI costs will significantly decline over time. He mentioned Google's decision to reduce its AI usage in search after its bot began making strange suggestions as an example.

"The starting point for costs is also so high that even if costs decline, they would have to do so dramatically to make automating tasks with AI affordable," Covello added. "In our experience, even basic summarization tasks often yield illegible and nonsensical results."

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Despite Covello's skepticism, other experts quoted in the report were more optimistic.

"The technology's cost equation will change, just as it always has in the past," said Kash Rangan, a senior equity research analyst at Goldman Sachs.

Eric Sheridan, another senior analyst with the firm, compared the initial reactions to AI with those to the iPhone and Uber, predicting a similar acceptance over time.

"People didn't think they needed smartphones, Uber, or Airbnb before they existed. But today it seems unthinkable that people ever resisted such technological progress. And that will almost certainly prove true for generative AI technology as well," Sheridan said.

Why It Matters: The concerns raised by Goldman Sachs come at a time when tech companies are aggressively pursuing AI advancements.

For instance, Apple Inc. (NASDAQ:AAPL) is reportedly in talks with Meta Platforms Inc. (NASDAQ:META) to integrate Meta's generative AI model into Apple's new AI system, Apple Intelligence. This move is part of Apple's broader strategy to catch up in the AI race.

Apple, a late entrant to the generative AI field, has developed its own smaller AI models. However, for more complex or specific tasks, it is seeking partnerships with other companies.

The company's focus on AI underscores the importance of this technology, despite the concerns raised by Goldman Sachs.

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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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