More than half of Fortune 500 companies see AI as a potential risk to their businesses

The rapid rise of artificial intelligence (AI) is reshaping industries worldwide, with its impact already being felt across various sectors.

While AI presents immense opportunities for innovation and operational efficiency, a significant number of the largest companies in the United States are increasingly viewing it as a potential risk to their business models.

This sentiment is highlighted by a new survey showing more than half of Fortune 500 companies are concerned about the potential risks posed by AI, reflecting this transformative technology’s complex and dual-edged nature.

According to research conducted by Arize AI, a platform that tracks public disclosures by large businesses, 56 per cent of Fortune 500 companies cited AI as a “risk factor” in their most recent annual reports.

This marks a significant increase from just 9 per cent in 2022, underscoring the growing awareness and concern among major corporations about the potential downsides of AI.

Generative AI: A powerful tool with potential pitfalls

The emergence of generative AI, a subset of artificial intelligence capable of creating humanlike text and realistic imagery, has been particularly notable in driving both excitement and apprehension among businesses.

Generative AI technologies, such as OpenAI’s ChatGPT, have become mainstream since their introduction, with Big Tech companies and startups alike investing heavily in AI research and development.

Despite the enthusiasm surrounding generative AI, only 33 of the 108 Fortune 500 companies that specifically discussed this technology in their annual reports saw it primarily as an opportunity.

These companies cited potential benefits such as cost efficiencies, improved operations, and accelerated innovation. However, more than two-thirds of this group also highlighted generative AI as a risk, reflecting a cautious approach to its implementation.

The concerns raised by these companies are multifaceted. For example, Netflix, the $290 billion streaming service, expressed worries that its competitors could gain a significant advantage by effectively leveraging AI, which could undermine Netflix’s ability to compete and negatively impact its operational results.

Similarly, telecom giant Motorola flagged the potential for AI systems to malfunction or process insufficient or biased data, which could harm its earnings and reputation.

AI risks vary across industries, with media and tech companies most concerned

The survey reveals that certain industries are more apprehensive about AI’s potential risks than others.

In particular, 90 per cent of the largest U.S. media and entertainment companies cited AI as a business risk in 2023, reflecting concerns about how AI might disrupt content creation, intellectual property rights, and revenue models.

This anxiety is echoed in the software and technology sectors, where 86 per cent of companies highlighted AI as a risk.

The telecommunications, healthcare, financial services, retail, consumer, and aerospace industries have also expressed significant concern about AI, with more than half of the companies in these sectors listing AI as a risk factor.

The widespread apprehension underscores the far-reaching implications of AI across various domains, from content production and customer service to data privacy and regulatory compliance.

Salesforce, a software business valued at $250 billion, exemplifies the ethical and financial challenges posed by AI.

The company acknowledged that its adoption of AI could lead to emerging ethical issues related to data collection and privacy.

Additionally, the uncertainty surrounding new AI applications might necessitate increased investment in developing and testing models, potentially affecting the company’s profit margins.

Legal, regulatory, and cybersecurity risks associated with AI were also common themes in the survey.

Entertainment giant Disney, for instance, warned that the “rules governing new technology developments” like generative AI are still unsettled.

This uncertainty could impact Disney’s business model, including revenue streams tied to its intellectual property and the creation of entertainment products.

In the pharmaceutical sector, Viatris, a company spun out of Pfizer, raised concerns about the use of AI solutions by employees or suppliers, which could lead to the unauthorized disclosure of confidential information and personal data.

These risks underscore the need for robust safeguards and clear regulatory frameworks as AI continues to evolve.

Balancing AI risks with opportunities

Despite the numerous risks associated with AI, a minority of companies view it as a significant opportunity for growth and innovation.

In the healthcare sector, for example, Quest Diagnostics and Cigna are leveraging generative AI to enhance various aspects of their operations, such as customer service, specimen processing, and claims analysis.

These companies see AI as a tool to improve efficiency and deliver better outcomes for patients and customers.

Similarly, advertising agency IPG has embraced generative AI to “add intelligence to the creation of content across the marketing spectrum.”

By integrating AI into their creative processes, companies like IPG can produce more personalized and effective marketing campaigns, demonstrating the potential of AI to drive business value in the right contexts.

However, even among companies that view AI positively, there is an acknowledgment of the need for caution.

The dual nature of AI—offering both opportunities and risks—means that businesses must carefully consider how they implement and manage AI technologies. This includes investing in AI governance, ensuring transparency in AI decision-making, and addressing potential ethical and legal challenges.

The regulatory landscape: A work in progress

As AI continues to advance, the regulatory landscape surrounding the technology remains in flux. Companies are closely monitoring developments in AI regulation, which could have significant implications for their operations and strategies.

For example, Disney’s concerns about the unsettled nature of rules governing AI highlight the broader uncertainty facing businesses as they navigate the legal and ethical complexities of AI adoption.

Companies are aware that regulatory frameworks could evolve rapidly, and they must be prepared to adapt to new requirements.

In addition to existing regulations, businesses are also anticipating potential new laws that could address specific AI-related issues, such as data privacy, algorithmic transparency, and the ethical use of AI.

As governments and international bodies work to develop AI regulations, companies will need to stay informed and proactive in managing compliance risks.

AI’s impact on competition and innovation

One of the most significant concerns among Fortune 500 companies is the impact of AI on competition.

As AI technologies become more sophisticated and widely adopted, companies that fail to keep pace with AI developments risk falling behind their competitors.

Netflix’s warning about competitors gaining an advantage through AI is indicative of the broader competitive pressures faced by businesses across industries.

Companies are acutely aware that AI has the potential to disrupt traditional business models, and those that can harness AI effectively may gain a significant edge in the market.

At the same time, the rapid pace of AI innovation presents opportunities for companies to differentiate themselves.

By investing in AI research and development, businesses can create new products and services, improve operational efficiency, and enhance customer experiences.

However, achieving these benefits requires a strategic approach to AI adoption, with a focus on long-term goals rather than short-term gains.

The future of AI in business: Navigating uncertainty

As AI continues to reshape the business landscape, companies must navigate the uncertainty and complexity associated with this powerful technology.

The findings of the Arize AI survey highlight the growing awareness of AI’s potential risks, but they also underscore the importance of balancing these risks with the opportunities that AI presents.

For many companies, the key to successful AI adoption lies in effective risk management.

This includes developing robust AI governance frameworks, investing in AI ethics and compliance, and fostering a culture of transparency and accountability.

By taking these steps, businesses can mitigate the potential downsides of AI while positioning themselves to capitalize on its transformative potential.

As the regulatory environment evolves and AI technologies continue to advance, companies will need to remain agile and adaptable.

Those that can navigate the challenges of AI and harness its capabilities effectively will be well-positioned to thrive in the increasingly competitive and technology-driven business landscape.