Kevin88660
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They operate on the basis that other competitors collapsing before they do, and major breakthrough happen that allow them to charge more for strong use case.Insightful read on the economics of generative AI. What if generative AI just isn't profitable?
"Put aside any feelings you may have about generative AI itself, and focus on the actual economic results of this bubble."
AI Is A Money Trap
In the last week, we’ve had no less than three different pieces asking whether the massive proliferation of data centers is a massive bubble, and though they, at times, seem to take the default position of AI’s inevitable value, they’ve begun to sour on the idea thatwww.wheresyoured.at
Author explores numerous questions to which there seem to be no positive answers for the supposed AI boom.
- How much revenue is there?
- Why is there no profit?
- Why are there no exits?
- Why does big tech, which has sunk hundreds of billions of dollars into generative AI, not talk about the revenues they’re making?
- Why, for three years straight, have we been asked to “just wait and see,” and for how long are we going to have to wait to see it?
"OpenAI, by my estimates, has only made around $5.26 billion this year (and will have trouble hitting its $12.7 billion revenue projection for 2025), and will likely lose more than $10 billion to do so."
What about the datacenters? What is the return on those investments?
"Half of the US economy’s growth came from building data centers for generative AI, which has the combined revenue of a little more than the F*cking smart watch industry in 2024."
"the reality is that whatever economic force is being driven by “AI investment” is really just four companies building and leasing data centers to burn on generative AI, a product that makes a relatively small amount of money before losing a great deal more."
"Private equity may ultimately face the same problem as many AI startups: there is no clear exit strategy for these investments."
"How, exactly, does this end? What is the plan here? Is big tech going to spend hundreds of billions a year in capital expenditures on generative AI in perpetuity? Will they continue to buy more and more NVIDIA chips as they do so?
At some point, surely these companies have built enough data centers? Surely, at some point, they’ll run out of space to put these GPUs in? Is the plan to, by then, make so much money from AI that it won’t matter? What does NVIDIA do at that point? And how does the US economy rebound from the loss of activity that follows?"
"Long story short, these companies are unprofitable with no end in sight, don’t even make that much money in most cases, are valued more than anybody would ever buy them for, do not have much in the way of valuable intellectual property, and the two biggest players burn billions of dollars more than they make."
Is generative AI a giant money pit?
To do an AI software start-up business you need that kind of leap of faith in AI changing the world. People want their names in history to be relevant for the great coming of AGI that makes average human irrelevant.
If you are a big tech software company you have no choice. If Google spends less on AI Meta will eat their market. Embrace it invest it and you have a chance. Failing to do so is a sure death.
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