Most "generative" AI is a copyright nightmare in the making, so you won't see large language models being used by large companies much. Marketplaces might outroght ban it like Valve already did and I wouldn't put past mod communities like Nexus doing the same.

That being said, some models might be used instead to aid in animations, photogrammetry, etc. so I hope it makes game development cheaper.

I imagine that we're going to start seeing games being advertised as "AI-Free", pushing the artisanship of the product to get sales.

After the Souls-like genre, we're getting the Soulsless-like, comprised entirely of future Ubisoft Open World AI escapades

It's gonna increasingly reduce development time. There's a lot of pushback against it right now but when it becomes powerful enough companies won't be able to ignore it regardless of the negative PR. It's also gonna massively benefit stuff like mods and fan games, AI voices are already being a boon to those.

Likely, same as we still have hand-drawn and claymation for adventure games. All original artwork (no AI assist) would be it for AAA games. There are still movie makers as well that pride themselves on no CGI stunts. And soon 'no AI characters' to be added...

In 10 years give or take, I think you'll see kids just making their own games or people being able to take existing games and make spin-offs/sequels to them ... this is done today, but it will become exponentially easier and cheaper to do in the future. I'm not talking small scale games per se either, could be 3D games with models that are realistic because the AI will just as easily be able to create a realistic looking person for you at a prompt.

But I wonder how the industry will handle a flood of such content.

On a semi-related note, recently ran into this: https://www.youtube.com/watch?v=XZ2KGTi2OK0

Think it's pretty cool and hope we don't completely shun AI tech.

I think the legal situation is a bit hairy at the moment, so not necessarily a lot. Still, even if AI gains traction in games, it'll probably be anything but actual AI in games, which I find ironic.

Like with a lot of industries, AI has a big potential to kill many jobs, video games are no exception. It also holds the ability to potentially speed up game development significantly. I don't know if it's possible to weigh the positives and negatives of AI and get something where everyone comes out ahead. I guess we'll see in due time.

Really all the AI should be used for is for touching up and adding finishing touches to already crafted work from a human, but instead the industry sees it as a cheap get rich quick scheme and a means to employ less staff.

They'll find out quickly that AI shouldn't be abused in this manner via the lacking quality output and worse off output, that is if they continue to openly abuse it the way others are in the art industry. 

I'm amazed ppl think that AI generation is seen as a "grey area", when the reality is, is that those using the AI still need to pay for said content to train from, but not only that, they also ened to comply with existing copyright laws, which in turn would already limit what the Ai could train from without infringing copyright (which has already been made heavily evident that the Ai is already breaking those terms, because it cannot think for itself, let alone outside the box yet).