Wednesday Aug 5
STRATEGYOther

Economists Try To Measure AI's Payoff

5AUG
$725B QUESTIONSPENDROI ?

Companies poured $725 billion into AI this year. The New York Times asked what they're getting back, and nobody has a clean answer. New metrics now count 'virtual employees' alongside human ones.

Yale economist Aleh Tsyvinski analyzed OpenRouter spending data covering two percent of AI outlays to track how markets react. One proposed metric divides AI spend by the cost of a worker to count virtual employees.

AI budgets behave like variable operating expense, not fixed software cost. Usage grows, token prices shift, and finance teams can't attribute the spend to revenue.

Charlie Treadwell of Elisity puts the test plainly: is it incremental revenue, or are you just eating your margins. Boards will start asking his question this budget season.

full brief & sources

⚡ Why this matters

  • Hyperscaler capex hits $725 billion this year with no agreed way to measure the return.
  • AI spend is becoming variable opex, breaking every software budgeting model finance teams use.
  • The first credible AI-ROI metric will shape which projects survive 2027 budgets.

🔍 What happened

  • The New York Times examined what enterprises get for record AI spending.
  • Yale economist Aleh Tsyvinski studied OpenRouter data representing two percent of AI spending.
  • One approach converts AI spend into 'virtual employees' and measures output per combined workforce.
  • Amazon, Alphabet, Meta, and Microsoft plan roughly $725 billion in 2026 capital expenditure.
  • Enterprises report AI budgets consumed far faster than planned as token usage scales.

💬 Smart takes

  • Charlie Treadwell, Elisity: 'Is that resulting in incremental revenue, which is all that really matters, or are you just eating at your margins?'
  • Aleh Tsyvinski, Yale: markets are already pricing AI spending they cannot yet measure.
  • Skeptic: the same ROI panic preceded cloud and mobile - the metrics arrived after the winners did.

🧭 Where this goes

  1. LikelyCFOs adopt per-workflow AI cost attribution as a standard line item in 2027 planning.
  2. Likelyvendors start selling AI-ROI measurement as its own product category.
  3. Possiblea spending pullback hits companies that cannot show attributable AI revenue.
  4. Wild Card'virtual employee' counts appear in public-company earnings disclosures.

🥄 The Spoon Take

The AI industry has world-class measurement for everything except whether it's worth the money. When economists resort to counting virtual employees, the honest reading is that nobody knows yet. The companies that build attribution now will keep their budgets when the question gets loud.

🤔 Pushback

Transformative tech always outruns its metrics early - electricity's productivity payoff took decades to show up in the statistics.

·NYT via Oman Observer - Full article·GAI Insights - Analyst read·Tom's Hardware - $745B capex figure