Investors are sounding the alarm on "AI washing" in startups, a phenomenon where companies exaggerate or misrepresent their use of artificial intelligence to attract investors and boost their valuation. This trend is reminiscent of the "greenwashing" of the past, where companies made false claims about their environmental sustainability.
The US Securities and Exchange Commission (SEC) has already taken action against two investment advisers, Delphia and Global Predictions, for making false statements about their use of AI. The firms agreed to pay a total of $400 million in civil penalties.
Investors are warning that AI washing can lead to a bubble in the AI market, similar to the dot-com bubble of the late 1990s. They caution that startups are overhyping their AI capabilities to attract investors, which can lead to unrealistic expectations and eventual disappointment.
To avoid falling prey to AI washing, investors are advised to conduct thorough due diligence on startups, scrutinizing their AI claims and assessing their actual capabilities. Regulatory bodies are also taking steps to prevent AI washing, with the EU's AI Act providing a comprehensive framework for governing AI technologies.
