Generative Artificial Intelligence: Project Valuation

The main purpose of this article is to provide a real options approach to cost–benefit project evaluation for generative artificial intelligence (GAI). Currently, managers are being challenged to justify GAI projects because of the potential but uncertain benefits and high investment costs, but there is a lack of a proper justification model for managers to measure every GAI-enabled opportunity and challenge. Hence, this article presents a typology of GAI projects and discusses cost–benefit perspectives on GAI. Then, this article discusses the real options approach to the valuation of GAI projects, highlighting its advantage over traditional valuation methods in highly fluid technological and regulatory environments.

Generative artificial intelligence (GAI) has been advancing rapidly and will have broad and deep impacts on the economy and society. According to a Bloomberg survey,1 the GAI market is poised to explode, growing to $1.3 trillion over the next 10 years at a compound annual growth rate of 42% and gradually shifting to inference devices for large language models, digital ads, specialized software, and services in the medium to long term. GAI is a type of AI typically used in conversational search and content creation for a variety of tasks, such as marketing, advertising, and finance.2