John Chambers Warns Of An AI ‘Bubble’ And ‘Train Wrecks.’ How He Sizes Up OpenAI, Microsoft, Google.

Former Cisco Systems (CSCO) CEO John Chambers led the tech giant for 20 years through the industry’s biggest upheavals, from the dot-com boom to cloud computing, facing off with other titans like Microsoft (MSFT), IBM (IBM) and Oracle (ORCL).

Five years ago, he embarked on a new career as a venture capitalist as founder and CEO of JC2 Ventures. Today, the 74-year-old Chambers is helping startups take on the wave sweeping the tech industry: artificial intelligence. He is both upbeat and worried about the craze triggered by OpenAI’s launch of ChatGPT a year ago.

“So much money is going into AI,” he told Investor’s Business Daily. “There’s going to be a bubble. And there are going to be some real train wrecks within it.”

In an interview with IBD, Chambers shared his insights into the frenzy over AI, including the recent leadership chaos at ChatGPT creator OpenAI — and why he thinks the new trend is different from past technology transformations.

This interview was edited for brevity and clarity.

IBD: In late 2019, you worried about a generation of tech leaders including startup founders who never went through a downturn. Now, we have tech leaders who have gone through a downturn triggered by the Covid lockdown, and another by the slump that followed a Covid rally. There’s a still debate on whether a recession is about to hit. What do you think?

John Chambers: I think we’ve been six months away from a recession for three-and-a-half years. I think this is the new norm. No one knows for sure. I know some really smart market people and financial managers. There are still different opinions on it. But the number of pessimists is becoming a minority again. And the market is clearly acting well.

It’s amazing that we not only came in for maybe a soft landing — the second one in 60 years — but we didn’t bump down the runway. Remember, I am a pilot of a helicopter and a single-engine plane. I consider a good landing any landing in which I don’t damage the plane or don’t hurt anybody.

I think the probabilities of a successful landing — I wouldn’t necessarily say soft — are going up dramatically. I’m fine if we bumped down the runway a couple of times.

You still need agility. There’s going to be wild cards that we haven’t anticipated and could throw us off-track.

You saw that in spades in terms of what occurred with OpenAI in just a period of two weeks, with how agile Microsoft navigated through that amazingly well, or at least appeared to have done it amazingly well.

John Chambers On OpenAI Management Crisis

IBD: What was your reaction to what happened at OpenAI and with Sam Altman?

Chambers: Microsoft showed agility that I think was very sophisticated. They should have great agility on saying here’s how the board has to change. Here’s what needs to be done. I think they navigated through an extremely challenging situation very well.

Now let’s do the reverse. If you’re a traditional company, looking at getting closer to software companies, especially in AI, does it really make you nervous with how unique the tech industry is, and their ability to react to this? Of course it will. And so I think it showed a side of tech that is not the traditional world. That spooked people a little bit.

Now most startups like it because, all of a sudden, it’s not a given that Microsoft or Google or OpenAI will be the dominant player. It’s going to be whoever executes the best. So it opens up the playing field for differentiation here, including models, in a way that people might not have thought existed before.

IBD: Startups have typically played a critical role in a tech transformation. We saw that with Google. We saw that with Apple.

Chambers: And with Cisco.

Outlook For Microsoft, Google, Other Big Tech Stocks

IBD: Cisco, of course. Is there anything different or notable with the role that OpenAI has played?

Chambers: Yes. But I’d word it differently. I think you’ve hit on the key issue: It’s different. Traditionally, the incumbents who led in one phase have done OK in the next, but they never led it. IBM mainframes, DEC, Wang, minicomputers, PC players, Compaq, the HPs, the Dells. Then the cloud: Amazon, Microsoft, Google were stronger.

Every time, it’s been the new players who were the dominant players in the next generation. It was rare and nonexistent where the leader in the prior one was one of the top three leaders in the next one, five or 10 years out.

This might be the one exception. If you watch the nimbleness of Microsoft and Google and Meta and Amazon, they are all focused on this in a big way. With OpenAI changing the market, they realize they could get disrupted and they are the most economically powerful tech companies we’ve ever had. So I think one and maybe two of them will end up being one of the top three or four here.

Normally, the leaders of the prior generations weren’t the leaders of the transition. This time we might actually see one or two make it through that.

I still think there will be new players who will transform it. OpenAI, I think, is the most visible, but I’m not saying it is the winner at all. In fact, if you really look at the path to profitability and approaches, this probably got people nervous, what they just went through.

John Chambers On What Worries AI Observers

IBD: What do you mean it got people nervous?

Chambers: How fragile they are. I think this actually continues to open up the playing field for other startups.

IBD: Which of the established players do you think will make it in this transformation? IBM, a decade ago or more, was considered the trailblazer in AI. That’s no longer the case.

Chambers: I love IBM and am an IBMer at heart from many decades ago. (Chambers began his career with IBM.) And they did a lot of the initial research and development. But the key to research and development is how do you turn it into products and revenues in a relatively fast time period.

Traditionally, it’s been the startups that do this. It has been very hard for the traditional incumbents in prior generations to make that transition, especially if they’re two generations out. I think it’s fun to watch. But to your point that I agree with, these big companies are more agile than I’ve seen them in a very long time.

How Microsoft, Google And Others Could Fare In AI

IBD: Which ones?

Chambers: I would bet on the Big Four (Microsoft, Google, Meta, Amazon). Maybe I’d throw Apple into that as well. There’s a reason that they’re accounting for half the market growth in the Nasdaq.

I think you now have an opportunity where perhaps a Microsoft or a Google or an Amazon leads in the next group. Which ones? It depends on execution.

I would argue that their plans are similar in many ways. They are acquiring aggressively. They’re spending huge amounts of money on this and leading to just focusing the whole company on AI. It is just amazing to watch.

But I think it depends on who executes. I’m still a Warren Buffett fan in many ways. Strategy and vision is very important, but it’s about culture and execution. I think it will be startups that may surprise you that come into this picture. And with the startups, it’s way too early to pick the leaders.

OpenAI Is Not ‘On A Clear Path To Lead’: John Chambers

IBD: Not OpenAI?

Chambers: I don’t think OpenAI is on a clear path to lead.

IBD: The turmoil has hurt them in your view?

Chambers: Oh yeah. You can have a great strategy and vision and a great product, but what’s your revenue? How fast are you growing? Can you market through these transitions?

Can you change the leadership team as you go through the transitions? Can you do alliances in a way that really works?

You’ve got to give them tremendous accolades for the accomplishments but they’re getting the difficult bumps as you move into the teenage years. It’ll be fun to watch.

A Troubling Thing About AI

IBD: What do you think is the most troubling aspect of the AI trend?

Chambers: I think the most troubling aspect is how it took seven years to get here. The second thing I think we’ve got to watch out for is that so much money is going into AI. There’s going to be a bubble. And there are going to be some real train wrecks within it. And we saw a train wreck almost occur in front of our eyes and it appeared that they got the train back on the track and it stabilized but it was so close to a real disaster. We all saw it play out.

IBD: You’re talking about OpenAI.

Chambers: Yes. You’re going to see more of those in the industry.

IBD: In May, tech CEOs, including Sam Altman, put out a one-sentence message, warning against the “risk of extinction” posed by AI. What did you think of that statement?

Chambers: The key thing for me about AI is it’s inevitable. It’s going to move and you’re not going to be able to dramatically slow that down.

So how do you get ahead of it? Put in guardrails, which allow for the logical evolution of that. I think you’re now seeing (companies) say this is very serious. And we’ve got to take it as such. I thought it was very constructive. We’ve got to really move with tremendous flexibility and agility to navigate through it.

I would have probably used different words myself. But it’s a way of getting people’s attention to say this is really serious. If they had said, “AI is going to be a big problem,” everybody would yawn and say, “Yeah, we’ve heard that.” So it could be a very effective way of shaking people up.

John Chambers’ View Of AI Jobs Impact

IBD: There’s also a debate on the impact of AI on jobs. You’ve talked about AI creating new jobs, but also causing disruption. How have your views changed over the past year given the changes?

Chambers: Every major technology transition that we went through — mainframes, minicomputers, PCs, the internet, cloud and now AI — creates a large number of new and different jobs and destroys or eliminates a large number of the others.

The difference (now) is that it is occurring at a pace three to five times faster. So can you absorb the disruption of jobs and get them transferred to newer, higher-level jobs?

Going from a rural environment to a manufacturing city environment, the transitions with the internet — these occurred over a period of let’s say 10 to 15 years. Nothing like we’re seeing now.

My worry is the job destruction will occur faster than we can replace it over time.

Will we sort through this? Yes, we will. But there’s going to be a crossing the chasm moment where innovation is going so fast and the new job creation and transfer training for the new jobs doesn’t occur as fast. That will impact every company.

Artificial Intelligence And Cybersecurity

IBD: Another issue is the potential impact of AI, both in terms of enhancing cybersecurity and also creating dramatically more dangerous risks.

Chambers: In the big picture, AI might be the factor that finally causes the cybersecurity industry to consolidate. I believe it’s been set up for consolidation for a long time because you have 50 to 100 cybersecurity companies and they aren’t designed to (work) together. The bad guys just find the weakness through that maze, and using AI they’ll find it at a faster and faster pace.

At the same time, AI can be the solution. The issue which is going to be red-hot in this election cycle over the next year and a half around the world is deepfakes and the ability to emulate you or me which is a harder person to emulate because I butcher the English language with a Southern accent while talking too fast. They can do that easily. You could not tell it was not me, both in terms of the voice and the video when it’s done really well by bad guys.

With AI, however, you can say you hear the difference in speech. My speech has literally 8,000 samples per second, and in five seconds that’s 40,000 samples. So a company like Pindrop can take that and be able to show: Was that you or was it a machine?

So AI is both something that unfortunately will make cybersecurity dramatically less secure, and AI will also make cybersecurity more secure.

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