AI washing might be a phenomenon you’ve never heard of, but it is rapidly on the rise.
Overplaying claims about artificial intelligence in the hope of creating a ‘halo effect’ around their company and boosting their stock price is a new fad, spanning across a variety of sectors.
The current wave of AI hype is boosting companies that emphasise their use of AI, with some like Nvidia seeing their stock price rise over 500 per cent since the start of 2023.
This has left many companies eager to jump on the bandwagon, even if their business has absolutely nothing to do with AI.
“There are going to be many use cases that are completely pointless using this technology that people just want to be part of the hype cycle,” Lewis Liu, co-founder and chief executive of Eigen Technologies, told City A.M. last month.
In February last year, the US Federal Trade Commission issued a warning that companies were beginning to use fake AI claims in their advertising and marketing materials.
Now, it has been revealed that the number of UK companies issuing statements to shareholders that include promoting their use of AI has increased 75 per cent in the past year, from 320 to 560, according to research from Bowmore Financial Planning.
UK companies that have promoted their use of AI in their announcements to investors over the last year include BP, insurers Aviva and Hiscox, Marks and Spencer and 888 Holdings.
While none of these companies have been accused of AI washing, it shows that businesses are eager to bring AI into their business when they might not necessarily need to.
Two months ago, the US Securities and Exchange Commission took the first action against two investment advisers, Delphia and Global Predictions, for the use of AI washing.
The companies had to settle the SEC’s charges and pay $400,000 (£318,400) – but did not admit to or deny the regulator’s findings that they had made misleading claims about their use of AI.
Delphia had said it used AI in its investment process, while Global Predictions said it was the “first regulated AI financial advisor” and used “AI-driven forecasts”.
SEC chair Gary Gensler stated at the time: “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies.
“Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
Mark Incledon, company CEO at Bowmore Financial Planning, said: “AI washing presents a risk for investors. Not all the players in AI are going to be winners and many companies that are talking up their AI usage risk misleading investors if they overplay their hand.
“AI washing is also a problem in the wealth sector with IFAs and wealth managers overplaying their usage of AI in stock picking or broader asset allocation.”