John Chambers expects an AI bubble, which will claim a majority of companies, 'but it is worth the bet'

By Jon Swartz

Silicon Valley legend John Chambers is sold on artificial intelligence, but he sees choppy times in its near future.

"Going into 2024, it will be the decade of AI in front of us, which will dwarf the size of the internet and cloud eras combined," Chambers, who runs venture fund JC2, said in an interview Monday.

"Is it a bubble? Yeah. There are too many players, and the majority of [AI companies] will fail, but it is worth the bet," Chambers warned. All 20 of his startups have an AI strategy, he added.

Indeed, the AI innovation wave is sweeping the U.S. and the rest of the world, allowing places like West Virginia and India to "play at a different level," Chambers said.

Before, "if you weren't in Silicon Valley or New York or maybe Austin, you could not participate," he said. "West Virginia is now the No. 3 state in the U.S. in terms of percentage growth for the number of startups."

"In India, pre-[Prime Minister Narenda] Modi, it was the slowest-moving democracy," Chambers said. "Now, it is the most innovative in the world and most optimistic. It will become the No. 1 GDP country in the world within 30 to 40 years."

In what has become an annual tradition for the former longtime Cisco Systems Inc. (CSCO) chief executive, Chambers dusted off his crystal ball and made his usual bold predictions for the year ahead in tech.

What he sees is a rebounding stock market - "I'm more optimistic than in two years for a soft landing and a reasonably good year," he said - and increased M&A activity leading to a resurgence in initial public offerings after a long rough patch. Accelerating it all is AI, which he deems transformative and essential for the survival of Fortune 500 companies, most of whom he believes will fade away in a couple decades regardless.

The pressure is on, in an escalating digital arms race that entered a new phase with a groundbreaking product last week. Alphabet Inc.'s (GOOGL) (GOOG) Google unfurled Gemini as the company's "largest and most capable AI model" - one designed to supercharge everything from Google's consumer apps to Android smartphones.

Read more: Gemini, Google's long-awaited answer to ChatGPT, is an overnight hit

Though he foresees staggering innovation from Gemini with a major impact on the AI playing field, C3.ai Inc. (AI) CEO Tom Siebel contends it's anyone's race to win. "It could be OpenAI, Anthropic, Google or someone else. It will take three to four years to shake out," he said in an interview last week. [The billionaire pointed to the success of companies like Microsoft Corp. (MSFT), Intel Corp. (INTC), Amazon.com Inc. (AMZN), and others that "came out of nowhere" to become dominant vendors in their respective fields.]

Chambers agrees it is a "completely wide-open competition," but Apple Inc. (AAPL), Google, Microsoft, and Amazon could "crush competition" in their zeal to sew up the market.

Rakesh Malhotra, a former Microsoft executive who is co-founder of software company Nuvalence, believes Apple will "crash the AI party" with a "flood of AI-first products."

There will be bumps in the road, Chambers acknowledged, ranging from legislation to government oversight as Big Tech scrambles to dominate AI.

European Union policymakers agreed Friday on the AI Act, comprehensive regulation for artificial intelligence that makes the EU the first governing body to pass AI legislation of its kind. It covers AI's riskiest uses by companies and governments, including those for law enforcement and the operation of crucial services like water and energy.

Vijay Balasubramaniyan, co-founder and CEO of Pindrop, a cybersecurity firm funded by Chambers' VC firm, was among those who attended an AI Forum hosted by Sen. Chuck Schumer, D-N.Y., last week. The top concern at the meeting were deepfakes, misleading video clips created in AI that are being used to influence commerce, social media, and online communications.

-Jon Swartz

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12-11-23 1548ET

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