Tech Explained: AI Washing Raises Risks for Customers, Workers, and Investors in Simple Terms

At the beginning of the hype cycle for any technology, companies’ claims can get exaggerated. Artificial intelligence is no exception to that rule. Hence, the arrival of “AI washing.”

Like greenwashing, where companies try to make themselves appear more environmentally concerned than they actually are, or sportswashing, where countries hope pouring money into sporting events will improve a public image tarnished by wrongdoing, AI washing exaggerates the role of AI in productivity gains or a product’s performance.

Unlike greenwashing and sportswashing, though, AI washing can cost a lot of people their jobs.

“Many organizations went overboard on hiring during the pandemic and post-pandemic,” explained Manish Jain, a principal research director for the Info-Tech Research Group, a global research and advisory firm.

“There was never enough demand to justify that,” he told TechNewsWorld. “Now, with AI as the façade, many, if not all, are happy to offload a large number of people.”

“Blaming AI might hide the real reasons for job cuts or financial issues, things that are fundamentally tough to explain,” added Stephanie Nickolich, CMO of Qubic, an online AI development and research organization.

“Pointing to ‘AI transformation’ or ‘automation strategy’ makes layoffs seem planned, even smart,” she told TechNewsWorld. “Artificial intelligence hides behind planning. A sense that it must happen.”

“People find it easier to say that machines will take over jobs than to admit that mistakes were made,” she added. “The problem is that artificial intelligence distracts people from problems such as bad tariffs, weak logistics, and poor direction. Tech talk wraps all of those issues and keeps people from looking closer.”

Mark N. Vena, president and principal analyst with SmartTech Research, a technology advisory firm in Las Vegas, agreed.

“A company can point to AI transformation as the storyline, while the real drivers might be margin pressure, demand softness, or tariff-driven cost shocks,” he told TechNewsWorld. “The AI narrative sounds strategic and inevitable, which can reduce backlash and make painful decisions look like disciplined modernization instead of plain cost-cutting.”

Diminishing Trust

The biggest harm of AI washing is that it provides inaccurate market signals, contended Shawn DuBravac, CEO and president of the Avrio Institute, a technology consulting firm for CxOs and executives, in Madison, Wis.

“This can divert capital inside of organizations and also divert external investment,” he told TechNewsWorld. “It could result in workforce changes that are based upon false pretenses.”

“If leadership overstates what AI can do or is doing within the organization, it could also result in hiring freezes, team reorganizations, or role eliminations,” he added. “Overpromising AI results or AI potential can also result in diminished trust in future forecasting projections.”

It can also dampen enthusiasm for a company that appeared promising. “AI washing can be used to increase a company’s valuation, and both attract new customers and hold on to existing customers,” explained Rob Enderle, president and principal analyst at the Enderle Group, an advisory services firm in Bend, Ore.

“If the customers and investors figure out what’s going on, both are likely to distrust the company going forward and adjust their buying and investing behavior in response,” he told TechNewsWorld.

“Customers buy the promise and then pay the price when the product cannot deliver, which creates real operational risk and wasted budget,” Vena added.

“It also poisons trust in the whole market, making buyers more cynical even about companies with real capability,” he said. “Regulators have already signaled that deceptive AI claims can trigger enforcement when the marketing crosses the line.”

Deception or Plain Hype?

Daniel Castro, vice president of the Information Technology and Innovation Foundation, a research and public policy organization in Washington, D.C., pointed out that existing consumer protection laws are well-equipped to handle AI washing. “A false claim about AI is no different than a false claim about any other feature,” he told TechNewsWorld. “If it deceives the consumer into a purchase, it is actionable.”

“The real test for regulators will be distinguishing between outright deception and vague marketing claims where AI is used, but only incidentally,” he said.

Vena added that in the U.S., the FTC has explicitly framed deceptive AI claims as a consumer protection issue and has brought actions tied to misleading AI marketing. Meanwhile, the SEC has also charged firms for false statements about their use of AI, especially when those claims influence investor decisions.

Enderle doubted AI washers would have much to worry about from Washington. “The current administration seems more interested in spiking valuations than ensuring integrity in reporting, which will likely become a far bigger problem in the coming months,” he observed.

Companies that engage in AI washing are not defying any law or regulation, argued Info-Tech’s Jain; they are simply hyping their work with colorful AI terms. “While regulators can regulate fraud, they can’t easily regulate hype,” he said.

“AI washing is less about AI itself and more about incentives,” he contended. “As long as capital markets keep rewarding growth narratives, executives will keep fearing irrelevance in the absence of growth, and AI exaggerations are an easy route to buy time.”

“For investors,” he continued, “the antidote to AI washing isn’t asking what a company did, but what they achieved in terms of metrics.”

“The job of a VC is to determine when these companies are inflating the numbers and to talk to customers,” added Gene Munster, managing partner of Deepwater Asset Management, a venture capital firm in Minneapolis.

“Most venture funds operate on the principle that all the companies we are evaluating are overstating the reality,” he told TechNewsWorld.

AI as a Valuation Multiplier

Some companies tend to exaggerate AI capabilities because they believe AI-enabled positioning can improve fundraising optics, noted Alexander Rugaev, co-founder of AR Ventures, a technology advisory firm in Dubai, UAE.

“Founders respond to incentives,” he told TechNewsWorld. “If capital rewards the narrative, some will optimize for the narrative. But they forget to take into account that most investors are experienced enough to recognize AI that adds value versus AI washing.”

“The performance data always corrects the narrative,” he said, “but unfortunately, some trust can be burned before that correction arrives.”

In today’s market, AI is not just a capability; it has become a valuation multiplier, Info-Tech’s Jain added. “I’ve seen situations where a fairly standard analytics upgrade suddenly becomes ‘AI-powered transformation’ in investor decks and quarterly briefings,” he noted. “Companies, even mature ones, across the board fear being labeled ‘behind’ and feel pressure to signal relevance in this AI world.”

“AI is in the air, literally,” he declared. “And if you want to survive, you must show you are breathing it.”