Phoenix is positioned to be a ‘star hub’ in the growing AI economy

A new report from the Brookings Institution finds the Valley is well-positioned to be a leader in artificial intelligence. Researchers label the Phoenix metro area as a “star hub,” which is described as a region just below the superstars of the Bay Area.

Mark Muro is a senior fellow with Brookings Metro and one of the authors of the study.

“Why does this matter? Because this technology has such potential to generate productivity gains across the economy. So, therefore it really matters how well one is adopting it or if one is ready to make the most of it,” Muro said.

Muro looked at 14 measures that relate to three major pillars of promise when it comes to AI: a region’s talent level, its innovation and innovation infrastructure and adoption — how many firms are actually using the technology.

He says Phoenix and a number of other Mountain West and coastal metros are really well-placed on what he calls this new and challenging technology.

The Show spoke with Muro and asked if there were some measures on which Phoenix did better than others.

Full conversation

MARK MURO: Very much so. Phoenix actually looks very good on firm cloud readiness, firm data readiness, especially. And I think that may be because you have more, newer firms that are running some of the most modern IT solutions. And you have a good-sized IT sector as well. So you look really excellent on those measures. Quite good on academic publications, which is an important signal of the technology and analysis coming out of the region and obviously associated with ASU.

The weaknesses are in entrepreneurship, actually. The region, I think, is entrepreneurial broadly, but for startups and VC funding of specifically AI-related new firms, the region doesn't look that great. And nor does it look great on federal contracts and patenting in these spaces.

So that's a little bit unusual that you have a strong university and yet patenting is weak. And I think in that sense, the next step for Phoenix, I think, is to look at the entrepreneurship area and see if there's more that can be done to stimulate new firm startups in adoption of these technologies in the entrepreneurial space.

MARK BRODIE: Well, given where so many experts say that AI is going, it would seem as though that would be a really important one for any metro area. You know, it's great to have published papers. It's great to have, you know, academic institutions studying it, but like to actually use it, you need companies that are actually doing it. 

MURO: It's a great point. And it's a little puzzling because you do have a great public university and you have a great entrepreneurial ecosystem broadly. It may be, though, that these firms and startups in AI are especially demanding of strong VC investments. And you don't look that great on that front.

BRODIE: How do you find Phoenix faring sort of in the neighborhood? Obviously, there are other big metro areas in the Southwest and Southern California. How did Phoenix do relative to those? 

MURO: Yeah, your frequent, coastal neighbors, the Bay Area for sure is ahead of you. But after that, San Diego and LA are very solid competitors and peers. I think it's not just competition, but there can be benefits to having a strong neighborhood, as you were saying. Denver, Boulder, interestingly, places like Salt Lake City looks really good.

Places often with big universities, Sun Belt, entrepreneurial environments, and the ability to work together seem to be important factors here. I think this is basically good. The Intermountain West is actually quite strong as a whole and has a number of these kinds of strong metros that offer a lot of potential for the future.

BRODIE: One of the things that it's hard to have a conversation about AI in the Phoenix area without talking about natural resources, specifically water. 

MURO: Yeah.

BRODIE: And I wonder if that maybe places some limitations or maybe has a ceiling on what the potential is for that industry in this particular metro area, maybe even relative to others in this part of the country?

MURO: Well, first, access to computing is really important. And we count that as part of that innovation infrastructure. And in that, energy with water for cooling is absolutely critical. The good news, I think, for the region is you have put in place a lot of systems for water efficiency, but you're certainly taxing the resource at the same time.

And given the scale of what we're talking about, that's going to have to be a real, really central factor. I think this is a challenge for the nation in all places, not necessarily much, uniquely Phoenix's, though, it might seem that way.

BRODIE: Are you finding that cities are doing the same kinds of things to try to take advantage of AI as they did to try to take advantage of other economic development opportunities or maybe even other sectors of the tech industry?

MURO: Yeah, it's interesting. In one way, you could say AI is not radically different, which is the usual claim, but in some ways it is what some call a normal technology. It can be viewed that way. But I think that I think regions have been very astute to try to understand what the technology is and what their starting point is. And that's, I think, what is really happening now.

Places are taking inventory and stock of their starting point. And then as they do that, they're realizing that maybe they aren't just like the next metro down the highway. Most places, I think, start thinking about talent. But some places are working on making sure there's broad access to computational resources. Others are working on industry verticals.

A place like Fargo, North Dakota, is focusing on making sure that the agriculture sector there is utilizing this technology. In other areas, they are taking on ways of forging business and university collaborations. So I don't, I think what's interesting is we, as they begin to learn more, some of the initiatives maybe are becoming more variegated as they understand themselves better.

So that's the two things I want to stress is, you know, places have agency here and they need to follow their own star on these technologies.