Yet, given the level of spending on AI, it still needs a viable business model beyond subscriptions, which will not be able to generate billions in profits like the advertising-driven businesses that have defined the last 20 years of the Internet. Even the biggest tech companies know they need to deliver the world-changing agents they keep promoting: AI that can completely replace coworkers and complete tasks in the real world.
For now, investors are mostly buying into the hype of the powerful AI systems that these data center buildouts will unlock in the future. At some point the biggest spenders like OpenAI will need to show investors that the money spent on building the infrastructure was worth it.
There is still a lot of uncertainty about the technological direction AI is headed. LLMs are expected to remain important for more advanced AI systems, but industry leaders are unable to agree on what additional breakthroughs are needed to achieve artificial general intelligence, or AGI. Some are betting on new types of AI that can understand the physical world, while others are focusing on training AI to learn in general, human-like ways. In other words, what if all this unprecedented spending was done to support the wrong horse?
now question
What makes this moment real is the honesty. The same people who poured billions of dollars into AI will openly tell you that it could all be ruined.
Taylor presented it as two truths existing simultaneously. “I think it’s both true that AI will transform the economy,” he told me, “and I think we’re also in a bubble, and a lot of people will lose a lot of money. I think both are absolutely true at the same time.”
He compared it to the Internet. Webvan failed, but Instacart succeeded years later with essentially the same idea. If you’ve been an Amazon shareholder since its IPO, you’re looking pretty good. If you were a Webvan shareholder, you’d probably feel differently.
“When the dust settles and you see who the winners are, society benefits from those inventions,” Amazon founder Jeff Bezos said in October. “It’s real. AI is going to have huge benefits for society.”
Goldman Sachs says the AI boom now looks similar to what happened to tech stocks in 1997, years before the dot-com bubble actually burst. The bank identified five warning signs observed in the late 1990s that investors should now pay attention to: extreme investment spending, falling corporate profits, rising corporate debt, Fed rate cuts, and widening credit spreads. We’re probably not at 1999 levels yet. But the imbalance is increasing rapidly. Michael Burry, who famously called the housing bubble collapse of 2008 (as seen in the film). The Big Short, Recently compared The dot-com bubble of the 1990s also led to a boom in AI.
Perhaps AI will save us from our own irrational enthusiasms. But right now, we are living in that in-between moment when everyone knows what is going to happen but still keeps throwing more air into the balloon. As Altman said at dinner that night: “Someone is going to lose a very large amount of money. We don’t know who.”
Alex Heath is the author of sources sayA newsletter about the AI race and co-host accessA podcast about the inside talks of the tech industry. Earlier he was deputy editor The Verge,
