AI Boom: Only 4 States Riding the Wave

0:00I recently saw a very interesting report from Axios talking about who the big winners geographically and the big losers are in this new AI boom boom. So it's kind of interesting because there's actually only four states in America that are actually really benefiting that much from AI, primarily three. And the rest are virtually non-existent in this space. So today on the podcast, we're going to be talking about who the big winners and losers are, how we see this transforming and what people need to do and states in order to make the difference. So I think the latest tech boom is super concentrated.

0:36This whole AI boom that we're seeing, around 60 % of the generative AI job postings are actually located in just 15 different metro areas, you could call them. San Francisco obviously was the top one. But if you break that down even further, it's specifically a handful of states. So I'm sure, as you can imagine, you can make some guesses on which states those are. But all of this comes from the Brookings Institute report that they recently did. So generative AI, of course, may produce winner takes most kind of economic outcomes, per the authors of the Brookings report that they've recently released.

1:16And I think what's interesting here is unless, you know, the government makes some sort of big move, I don't really see this changing very much. So as you may have guessed, the top states or the top state was California with 35 different AI startups there. New York had four, Texas had two, Massachusetts had one. There was one company operating fully remotely. And when we're looking at these companies specifically, these are the 41 U.S. members of the Forbes AI 50 list, which is kind of a showcase of some of the promising AI companies. But these are only coming from four states. Now, of course, these numbers might be slightly skewed as this is exclusively, you know, kind of like a list that Forbes has put together.

1:57So perhaps Forbes looked more at California. But to be honest, this really is where we're seeing a lot of this technology and a lot of these companies come out of. Now, I think another thing that's really interesting is almost 50 % of the generative AI job postings that we've seen in the last year. And job postings are a great way to kind of, you know, understand who's hiring and what's going on. But those have all been in San Francisco. So, and I think in addition to that, well, I think it was a couple cities. It was San Francisco, San Jose, New York, Los Angeles, Boston, and Seattle. and that I think really extends previous trends in AI jobs and research and development so this is definitely a trend that we're seeing more broadly I think that if we're kind of looking at the analytical overview here in recent decades high-tech sectors in the U.S.

2:45have really gravitated towards coastal cities this is what we see right of course it's Silicon Valley for a reason but it is kind of a shame in today's day and age when there's so much ability to work remote and to travel around that we're not seeing more diversity of location in some of these AI startups specifically because there tends to be an issue when, you know, let's say all AI companies or all crypto companies or all car companies, I would even say, right? Like when you hit an entire industry or niche that's really set in one specific geographic location, there are some benefits, right?

3:19Like Detroit had a lot of car companies and they all, you know, you're obviously able to hire people from between companies and have a lot of tech and talent in that specific industry. But you do see some pretty big issues. Number one, with Detroit, it saw some massive population declines as the car market shifted. And in addition to economic impacts like that, that would affect the entire sector, I think it's just you don't really want to have one specific bubble. You don't want to have just the California bubble that is the lens that we always see AI through, right? You want to get a broad and diverse approach and perspective from people all around, you know, perhaps the United States, but also all around the world.

4:00We really would like to see people from all over the world creating a powerful, impressive AI companies and all over the country. And I think a more broad and diversified approach is going to give us AIs and projects that more accurately reflect what consumers actually want. I think what's really notable here is that none of the top 50 AI startups are located in the Rust Belt region, the Midwest or the South. San Francisco alone hosts around 20 of the top funded AI firms. And that is obviously exceeding the combined total for the rest of America. So San Francisco is home to 18 out of 55 entities on an alternative list that was put together, which is the IVP Enterprise 55.

4:44So this doesn't seem to necessarily just be a Forbes problem. And this really is, it looks like it's more indicative of what's actually happening in the overall market. So I think what's really interesting is that while over 100 different cities or metro areas could potentially become AI hubs, only 14 account for more than half of the AI research and development investments. So I think the geographic dispersion of AI-proficient workers is also critical for the implementation of the CHIPS and Science Act, which according to Zoe Bard, who's a senior counselor for the U.S. Department of Commerce, she actually just recently emphasized in the Aspen Security Forum that, quote, innovation occurs where manufacturing takes place.

5:28So shortly after her remarks, TSMC, Taiwan Semiconductor Company, which is the leading semiconductor manufacturer globally, announced a delay in the launch of their Arizona facility due to skilled labor shortages. Now, I personally can give you a little bit of background on this because I actually live in Arizona. And I know that when this big announcement happened that TSMC was going to come to Arizona, we're going to build some chip fabs and all that kind of stuff. People are really excited. I think Arizona and Phoenix in particular are an area that are really ripe. There's a lot of accelerators and startup kind of ecosystems that are getting kicked off the ground.

6:06That being said, right, it's nothing like the connections and the network that is currently in California or even in New York. and so I see this as kind of a budding place where tech will grow but obviously we are seeing that there is skilled labor shortages in in you know kind of helping some of these sectors grow specifically there and what is also interesting about Arizona is it's actually been the home of Intel for a very very long time I know a lot of guys that a lot of friends that work at Intel in their warehouses and in all sorts of places fabricating chips and other things and so I mean as far as the skilled labor issue goes a little bit more context to this is that i've actually heard that taiwan semiconductor company is really really hardcore a lot more hardcore than what typical american companies are and so obviously intel has had no problem filling their positions but i think uh for example taiwan semiconductor one of their like requirements is that you have to go to taiwan and work in one of their factories there for i'm not sure how long but it's perhaps a month or two months or something like that.

7:11And so I think for a lot of people leaving their family for a month or two months to go to Taiwan, which is kind of a more geopolitically sketchy place at the moment with China making threats to take them out. I see that as maybe being a broader reason more than just skill labor shortages. There's labor shortages everywhere. But that Taiwan Semiconductor Company has some pretty steep asks when it comes to what they're actually asking people to do. So I do think that there is the ability for them to scale up in Arizona if they just acted more like Intel or another American company, perhaps. And I think that there is the ability for, you know, this isn't just an Arizona issue.

7:50I think around the nation, around America or any other country, there is, you know, there is always the ability to train people. And I think that we need to focus a little bit more on that because AI really should be something that is spread out more globally and would have a bigger and more powerful impact if that was the case. So I think the report that we were referencing earlier and their authors are Mark Miro, Julian Jacobs, Sifan Lui, and they essentially proposed a more widely distributed increase in public sector AI research and computing access to disbursify AI benefits beyond just, you know, these some of these coastal cities.

8:28This is something I actually personally totally agree with. The federal non-defense AI research expenditure stagnated at around$1.7 billion back in 2022. So that is something that also could be looked at. And I think an additional note on this is that generative AI deployment is really in its nascent stages and its broader implementation and adoption across industries are expected to distribute at least some of the economic advantages, right? So even if we don't have all the AI companies all over, even if they were, let's just say all in San Francisco, for example, because every company that is implementing AI should see benefits from that.

9:07We should see like that sort of distribution of the benefits of AI. But I think it would still be good to see some of these foundational models and some of these bigger tech funded companies moving out, you know, like looking around and going to some other places. A National Artificial Intelligence Research Institute initiative is currently active in 19 different cities. And the idea is to kind of help foster AI expertise. Beyond AI is a broader kind of manufacturing boom that is occurring in the southwestern and southern and western regions in the US. So, you know, AI obviously isn't the only factor that is interesting here.

9:46But if we're look at kind of historical parallels to all of this, I believe in the 1960s, you know, the whole space race kind of served as an iconic instance of place-based industry policy, where essentially federal investments transformed cities like Huntsville, Alabama. And really, that became like the place for space exploration and technology to be developed. And, you know, I also mentioned Detroit and kind of where we saw cars there. We do see this with a lot of different industries, But with something like tech that I feel like really doesn't need to be in a specific location, and especially when people can work remote, I do think that it is going to be very beneficial if we can learn how to kind of spread out the love when it comes to AI innovation to a more broader and diverse range of places.

10:30And I think it'll be really interesting to see if we end up actually seeing that in the future.