Artificial intelligence is a feature, not a product, and like every other technology, it’s starting to fade into the background. Apple last week announced that it is embedding generative AI technology into Siri and other applications in iPhones, including a deal with OpenAI. Most Google searches now include an AI Overview. Microsoft has branded Copilot+ PCs for new Windows hardware. It sure looks to me like AI is on its way to being dial-toned.
What do I mean? It was a Boston telephone operator strike in 1919 that ushered in the era of dial tones to replace humans. A pleasing tone delivered simplicity, musically asking callers “number, please,” hiding all the complexity of relay switches, tubes and amplifiers. AT&T was a hot stock in the 1920s as phones proliferated. Same for companies deploying other advanced technologies, such as radio. Eventually, investors stopped caring. Technology almost always vanishes from sight on its way to becoming productive and ubiquitous. Does that mean the end of the current AI hype cycle? Soon enough.
We live in a dial-tone world—extraordinary complexity made so simple that it disappears. Push a button and your car starts. Fill it with gas and vroom vroom, you’re off, ignorant of drilling, refining and pipelines. Or charge your electric vehicle by plugging it in, not knowing or caring about transmission lines, generators or emissions. They’ve all been dial-toned; complexity disappears. Same for cellphones: no dial tones but coverage bars similarly dissolve the complexity. Most users think 5G service arrives via immaculate reception rather than comprehending orthogonal frequency division multiplexing and millimeter waves and optic backhauls.
Compaq was once a hot stock selling PCs, which included a magnetic disk spinning at 7200 rpm with a read-write head floating nanometers above the disk. Amazing. Did you care? Me neither. Automakers used to be hot stocks. Same for electric utilities. Heck, airlines were once hot stocks. Even software-as-a-service stocks have cooled. Investors marginally care but have mostly moved on.
“Everything is amazing right now, and nobody’s happy,” explained the on-again-off-again canceled comedian Louis C.K. in 2008. He’s right. Emails and texts magically arrive, but if the service goes down, we throw hissy fits. About a guy on a flight who complains when the internet stops working, the comedian noted, “How quickly the world owes him something he knew existed only 10 seconds ago.” That’s a clue: When complaints start and everyone stops looking at the miraculous good in things, it’s been dial-toned.
To understand where we’ve come from, he suggests, “Maybe we need some time where we’re walking around with a donkey with pots clanging on the sides.” We used to have the strange connecting noises between fax machines or dial-up modems. Even those audible clues are long gone.
Click on a glass screen and a guy with a man bun in a Prius pulls up and drops you home without any need for conversation or cash. How? Don’t ask. It’s so complex yet so simple. Autonomous vehicles are ridiculously complex, but driverless Waymos loop around San Francisco with passengers like a sci-fi movie. After a few sightings, it becomes kind of blah.
Five-dollar chicken miraculously appears in Costco . We pay with a tap or swipe. We electronically pay our bills. Cash is trash because money is dial-toned. We Zoom. We TikTok. We swipe right. All without appreciating these systems. Notice that crypto isn’t productive and remains complex, so it hasn’t disappeared or become ubiquitous.
The cool new thing is artificial intelligence. The world is learning about the trade-offs of large-language models, GPUs and retrieval-augmented generation. We’re in the donkey-with-pots phase. Investors deep-dive into whether AI can scale up or not. Will cheap open-source models from Meta and others prevail? Will Nvidia keep its 78% gross margins? Clang, clang.
But the fade has begun. AI is being dial-toned, hidden behind apps and devices, or eventually to some new efficient interface. Twenty dollars a month for ChatGPT-4o doesn’t pay for all those Nvidia chips. New products, markets and business models are needed, much as PCs spawned desktop publishing and expanded investment banking. And smartphones enabled Uber . Something’s got to pay for the dial-toned technology.
As AI grows more productive and disappears, the less interesting it becomes as an investment. Current hot AI stocks will have to grow into their hype. Remember, it took Microsoft more than 15 years to reach new highs after the dot-com mania. Investors will start looking for even cooler new things: Customer-service systems that don’t have us screaming “Operator!” Digital twin assistants to sit on Zoom calls. Automatic software coders. Your car as a robotaxi when you’re not using it. Loneliness-reducing companions for seniors. Robot factory workers. They’re all coming. Enter your wish list when you hear the dial tone.
