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Both.
Capabilities get overhyped as leadership of each of the large AI companies - and some of the smaller ones - spend disgusting amounts of fiat that need to be justified to current and future shareholders. They will gladly ride doomer panic waves to exaggerate the capabilities of their products and land higher valuations, attract more investment and skim off the top.
At the same time, the industry is not even teenage or infantile; it's not even truly born yet. The I in AI is currently not really there. It's just an extrapolation framework that emulates conversation (or action), not intelligence. We need a dozen fundamental breakthroughs for that I to really take form. Just realize that even a small LLM like llama3.2 has multiples more encodings of words and their relations than you have, it can emulate knowledge about tons more subjects. But it doesn't have actual knowledge. It's a hack, to deceive you, and it does that by following patterns of conversation that seem as a conversation to you, but at the core, there is nothing there that can be as insightful as even the youngest, pre-school child.
LLMs are databases, with a fuzzy search engine built-in. They aren't intelligence.