Does the real economy care that much about AI?

The real economy's interest in artificial intelligence (AI) is a subject of considerable debate among tech leaders. Some, like Monzo's founder Tom Blomfield, predict a significant rise in unemployment due to AI replacing human labor. Elon Musk, on the other hand, believes AI could displace nearly all jobs in a decade. Nevertheless, the ground reality paints a different picture.

Capital on Tap, a prominent UK SME lender, has analyzed AI spending patterns among its client base of tens of billions of pounds in transactions. The data reveals a surge in AI adoption among small businesses over recent years, with AI spending increasing from 3.2% to 12.8% of SMEs' expenditure from 2024 to 2026. However, the mean average spend on AI has risen from £93 to £288 per small business, while the median average, influenced by a few heavy spenders, is lower at £75.60.

Even so, AI tools only contribute 0.1% to the value of all card transactions processed by Capital on Tap, which amounts to just £4 billion annually in the UK, less than a tenth of Tesco's turnover. Despite the rapid increase in AI spending, the sector's growth rate is not fast enough to justify the massive infrastructure investments expected from the world's leading AI companies, who are projected to spend nearly $1 trillion on infrastructure this year and even more next year, largely through debt financing.

Therefore, while AI spending is indeed growing rapidly, it is not growing fast enough to make such investments profitable. This raises a critical question for investors: can the potential benefits of AI justify the unprecedented financial commitments required?