AI tools are everywhere. Profits may not be.
Generative AI looks like a startup’s dream. It’s widely available, relatively cheap to access, and capable of automating tasks that once required long hours and large teams. In theory, that should give newer, smaller firms an edge for challenging incumbents. But as reported in the new working paper “Generative AI and the Superstar Firm Effect,” co-written by former PI of the HBS AI Institute’s Digital Value Lab Suraj Srinivasan, early evidence from public markets points in a different direction: investors appear to believe GenAI’s biggest gains will accrue to larger, established firms, not their leaner rivals. Using the public release of ChatGPT in November 2022 as a natural experiment, Srinivasan and his co-authors examine how investors repriced the economic potential of generative AI across thousands of public companies. What they found should interest anyone thinking carefully about where AI value actually lands.
Why This Matters
If the market is correct, the lesson for newer firms is sobering but useful. GenAI may not level the playing field, but neither does it lock in incumbents forever. Younger firms might still have advantages to compete, especially in narrow domains where their data is uniquely deep, in workflows where superstar organizational complexity becomes a tax, or by partnering to access the kind of intangible capital that takes years to build alone. The market is already picking winners. Leaders must urgently build the complementary data and organizational assets that make GenAI uniquely productive to ensure that their firms will be part of them.
Link to the HBS AI Institute Insight Article
Link to the Research Paper
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