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Investors Pressure CEOs to Embrace Generative AI as Pandemic Splurge Wanes

Investors are urging global CEOs to adopt generative artificial intelligence as companies scale back their spending, with demand growing for technology-driven cost-cutting solutions amid slowing economic growth.

Global CEOs are encountering mounting pressure from investors to integrate generative artificial intelligence (generative AI) into their business operations. While there's a growing demand for AI-driven cost-cutting and efficiency solutions, the pandemic-induced spending splurge has given way to a more cautious approach in the business world.

As the global economy faces a deceleration, companies that expanded their tech investments during the pandemic are now reevaluating their strategies. The year-on-year revenue growth rates of major corporations, such as Accenture, have experienced continuous declines, reflecting a shift in corporate priorities.

Investors are now favoring deals that provide quicker returns and cost savings over expensive cloud data migration contracts. While AI holds the potential to optimize operations, it necessitates substantial tech infrastructure upgrades. However, many organizations still have the majority of their applications outside the cloud, hampering the full realization of AI's capabilities.

According to Julie Sweet, CEO of Accenture, only about 40% of businesses have moved their applications to the cloud. As a result, there's a surge in cloud spending, with Gartner estimating a 70% increase to $917 billion over the three years leading to 2025.

There's a notable disconnect between the short-term business outlook and stock market valuations. Leading Indian IT firms and Accenture trade at significant premiums relative to their long-term average forward earnings multiples. Despite these valuations, generative AI deals have not yet delivered substantial financial impact. For instance, Accenture's generative AI sales for the year ending August totaled only $300 million, a fraction of its $72 billion in new bookings. Moreover, these deals averaged just $1 million each.

While there's no universal definition for generative AI, its applications are becoming clearer. Businesses are witnessing productivity gains in customer support and coding, with anticipated automation shifts. Gartner predicts that within three years, technology will handle 10% of all customer support, saving companies around $80 billion in labor costs annually.

Companies hesitating to invest in IT upgrades risk falling behind their competitors. Investors anticipate that these organizations will eventually recognize the value of AI-driven solutions and allocate resources accordingly.

Investors are driving a shift in corporate priorities by pushing CEOs to embrace generative AI. As the global economy slows, there's a growing focus on efficiency, cost-cutting, and the adoption of technology solutions. Companies that embrace AI for productivity and cost savings are more likely to stay competitive and agile in an evolving business landscape.