This may be the Achilles' heel of the AI trade

Investing.com -- The surge in artificial intelligence investment may be built on shaky assumptions, with BCA Research warning that “the rush to build AI infrastructure is based on a false premise: that there are significant advantages to being the first to come to market.”

In a report headed by BCA Research’s chief global strategist, Peter Berezin, the firm said that while first-mover advantage can be valuable in industries driven by “network effects, economies of scale, or legal protections,” none of these factors “clearly apply to AI.”

The firm cautioned that “the better AI becomes, the more difficult it may be to monetize it.”

According to BCA, the AI industry shares uncomfortable similarities with airlines, high capital costs and limited differentiation.

“AI companies have high capex requirements and produce a fairly commoditized product,” the analysts said. “Investors are confusing cyclical profits with structural ones.”

The note argued that monetization could also prove elusive. “If an AI agent does what it is supposed to do, it will provide you with the best results, period,” BCA Research said.

They added, “If you ask an AI agent to book you the cheapest flight from New York to Miami next Saturday around 9am, and it says ‘United Airlines at 9:30am, departing from LaGuardia,’ what incentive does United have to advertise?”

The firm believes that even users of AI may not benefit as much as expected. BCA cited research showing that “experienced software developers who used AI tools took 19% longer to complete their tasks” and that most companies “have derived no benefit to their bottom line.”

Ultimately, BCA Research warned of a “rising tide effect,” where gains in productivity are shared broadly, not captured by individual firms.

“AI could end up boosting profits by raising overall GDP, but it might do little to lift profit margins,” the firm said.

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