Nathan Benaich and Nikola Mrkšić discuss the current trend in tech investing where generative AI is thought to revolutionize low-margin service companies into high-margin enterprises. The strategy involves acquiring traditional BPOs at lower valuations and using AI to streamline operations, thus increasing profitability. However, they argue this view represents a fundamental misunderstanding. In reality, while AI can improve efficiency, it does not inherently change a service-oriented business into a true software enterprise, often leading to significant miscalculations of enterprise value in practice.
The notion that generative AI can simply convert low-margin service businesses into high-margin software companies is more mirage than reality, creating a misunderstanding of true value.
Investors are increasingly backing claims that generative AI can dramatically improve the efficiency of traditional service processes, potentially distorting perceived business value.
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