7 ms·

The AI Demand Bubble

112 points by 7777777phil 2mo ago

LarsDu88 2mo ago
This is a bit of a doomer article, but quite honestly, 200 billion dollars a year on a 30 billion dollar a year business that is growing does not really sound as bad as the author makes it out to be, especially when that business consists of growth startups that are currently primarily concerned with completely automating your current revenue stream. The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x and reducing inference cost by half (highly achievable with improved silicon and technology), then simply fire a large percentage of software engineers. From that perspective the current behavior is a bit wicked but downright logical. And having two whale customers is not really out of the ordinary for any software company... it's just the scale that is staggering. The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. Ironically, the actual thing that will likely kill OpenAI is ACTUAL OPEN AI.
- altcognito 2mo ago
  > The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. So much this. I've never touched the Chinese models (no particular reason) but it is having an impact as the frontier companies are pushing the price down as a defensive measure. Is this pulling forward what would have happened eventually? No idea. It is unclear how effective anyone beyond China and Mistral have been at developing cheaper, capable models. It is an expensive business. I'd be curious if anyone had any thoughts on that
  - Lwerewolf 2mo ago
    Poolside's stuff (US) is pretty good.
  - surgical_fire 2mo ago
    > I've never touched the Chinese models (no particular reason) but it is having an impact as the frontier companies are pushing the price down as a defensive measure I warn you that it is addictive. I am using DS and MiMo on Pi.dev, and I don't see myself going back to OpenAI. They are criminally cheap in a way that I don't care to spend tokens. That leaves me space to experiment. And in terms of capability, well... I use Sonnet and Opus at work (provided by my employer), and I see no difference in terms of what I can achieve. Well, besides Claude costing dozens of times more.
- bbatha 2mo ago
  > The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. OpenAI and Anthropic investors yes, however open weight models are good for cloud providers. They can turn the two large customers into direct ai services that can be spread across many customers and reduce the cloud providers overhead on ai services.
- anonyfox 2mo ago
  unironically sama is probably one of the most honest players here after all, he is burning money and if/when they have achieved AGI they will ask it in how to make money. its a different investor incentive story than trying to monetize into profitability right now that is indeed doomed to fail against china. Having no idea but a vision achieved is rrquired to be met to have those returns is actually the honest part here.
  - dgellow 2mo ago
    If Altman seriously believes his role is to create AGI then ask how to make the company profitable, he should get removed from his position of leadership asap. That’s crazy territory. It’s a grift, “AGI will save us” is the same as Musk’s “Mars colony”, it’s not supposed to ever happen, it’s supposed to be a goal post they ever move further
    - derektank 2mo ago
      He said the following in 2019, at a StrictlyVC event, “The honest answer is we have no idea, we have never made any revenue, we have no current plans to make revenue, we have no idea how we may one day generate revenue. We have made a soft promise to investors that once we've built this sort of generally intelligent system, basically we will ask it to figure out a way to generate an investment return for you. It sounds like an episode of Silicon Valley it really does I get it, you can laugh, it's all right, but it is what I actually believe is going to happen” Whether or not that’s his current view, who knows, but everyone who’s invested in OpenAI since should have known that this was at least part of his mental model. https://youtu.be/gjQUCpeJG1Y?is=--fubVyvQnC8rgse https://youtu.be/gjQUCpeJG1Y?is=--fubVyvQnC8rgse
      - dgellow 2mo ago
        Yeah, though that was before the shift to a for profit organization
    - tim333 2mo ago
      >It’s a grift, “AGI will save us” ... goal post... It's not really like that, at least the fundamentals, not necessarily what Altman / Musk say. The significant point is when AI/robots can do what we do without us and improve themselves even if humans disappear. That'll be a new era on Earth.
- actapp80 2mo ago
  > The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models. The monopoly will likely then shift from the model to the compute, i.e. who has the GPUs to serve inference at scale from the open weight models. The cloud compute giants have basically bought everything that Nvidia, Broadcom etc. have to offer. Currently, the inference margins are shared between the cloud giants and OpenAI/Anthropic. But if training great models becomes easier for some reason, the cloud giants benefit. Then they'll have used the OpenAI/Anthropic revenue and spending commitments to grow their cloud business, and then can serve other models and make even more money. Given that OpenAI and Anthropic are private, I don't think there is any risk to retail investors in this scenario. AI not turning out to be so useful, and OpenAI/Anthropic not being able to pay their bills is the correct failure scenario i think, as identified by the author.
  - LarsDu88 2mo ago
    The hyperscalers already had the compute monopoly. They just spent a bunch of money on even more compute. Compute is OK because it's reasonably general purpose to reallocate for what comes after chatbots (e.g. consumer robotics which is reasonably likely to take off in the next 4 years).
    - derdi 2mo ago
      What kind of robots are we talking about? What will robots do for me five years from today?
      - LarsDu88 2mo ago
        Literally everything chatbots don't do along with everything chatbots currently do. They will gradually go from doing your dishes, to contructing an ADU in your backyard by 2040 System 2 (thoughtful slow planning) has already been cracked with VLA models. The seemingly easier system 1 (fast reactive) will be figured out in months... maybe with JEPA
- InsideOutSanta 2mo ago
  > that is growing It seems like user numbers are stagnating, and the ad play isn't working out so far. Where is the revenue growth coming from? I don't think API can be the answer, because API has absolutely no switching costs. > The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x Presumably, that was the plan, but I don't see how that can possibly work with how quickly the Chinese models caught up.
  - dubeye 2mo ago
    revenue is probably the better indicator of whether revenue is growing or not
    - InsideOutSanta 2mo ago
      These companies don't disclose revenue.
  - xethos 2mo ago
    > API has absolutely no switching costs. Were that true, many embedded maps would have switched to OSM instead of Google Maps after Google massively increased costs. Adding your business to OSM is free, and API costs would fall pretty dramatically
    - InsideOutSanta 2mo ago
      I'm talking about inference APIs.
- dgellow 2mo ago
  > The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. Not in this specific article but Ed Zitron has been talking about open models quite a lot
- zozbot234 2mo ago
  > The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. I disagree that "the entire endeavor" is inherently doomed for Anthropic and OpenAI. There will always be a very top end of the market running humongous models (like the recently-teased OpenAI Astra and perhaps including future versions of the existing Claude Mythos) that's too large-scale to be successfully commoditized, and that's exactly where the ongoing investments in AI datacenter compute and model training are most likely to pay off at some point. Video generation is another emerging AI area that seems to require large-scale compute, though the value proposition is definitely iffy there.
  - LarsDu88 2mo ago
    There may be a market for the super models, but the reality is, the super models and the merely ok models already saturate on lower levels tasks. You don't need Fields math PhDs to make you a web app or plan your vacation. The remaining frontiers for high value ROI are ultra long horizon tasks, and lower cost faster inference. The former will rely on better architectures which will likely also get commoditized. The latter will probably be led by Chinese companies which already own most of the electronics manufacturing supply chain. Video generation was already tried by OpenAI and was enormous bust. It busted so hard the current leading proprietary videogen model is Chinese, and the best open weight videogen model is also Chinese.
- 1vuio0pswjnm7 2mo ago
  "And having two whale customers is not really out of the ordinary for any software company... it's just the scale that is staggering." Does the Apple lawsuit over trade scret theft, including secrets concerning "metal-finishing finishing process", suggest that this "software company" may have plans to sell hardware
  - 1vuio0pswjnm7 2mo ago
    *secret
- supern0va 2mo ago
  >The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. This is the thing: let's just reason it out. What if OpenAI and Anthropic both fail and end up in bankruptcy? What is the impact to the hyperscalers? ...they just start selling open weight model inference to businesses, or whatever other entity picks up the scraps from the collapsed labs. It's abundantly evident that there's major demand for compute, and that it isn't going anywhere.
  - LarsDu88 2mo ago
    I think the nuance that's being missed here is that the profit margin of inference serving when there's perfect competition is close to 0. Zero profit means no recouping investment costs effectively bursting the bubble. Technological progress can come at extreme pace but the lack of profits can still torch both the startup frontier labs and the hyperscalers. We plebians can then pick up H100 gpus off Ebay to help us invent new superconductors and generate waifu videos in pur basement...
    - pu_pe 2mo ago
      Profit margin determines whether OpenAI and Anthropic survive. The hyperscalers would be fine with a model where they make huge investments in infrastructure and you pay to access them per use/per hour. That is already their model for cloud compute and it is highly profitable, even though the vast majority of what people do with it (storage, VMs, etc.) is a commodity.
      - bigbadfeline 2mo ago
        > The hyperscalers would be fine... their model for cloud compute... is highly profitable. "fine" and "highly profitable" are doing a whole lot of heavy lifting here, actually masking the quantitative reality that these "high profits" are nowhere near the height required to pay back their debts and remain profitable enough to prevent a sharp drop of their stock prices - that kind of development is the opposite of "fine" as far as investors, ordinary people and the wider economy are conserned. > Profit margin determines whether OpenAI and Anthropic survive. The hyperscalers would be fine. That's not how the market works, if OAI or Anthro default, they'll bring down the whole market, it'll be 2008 on steroids. Assuming the fire can be contained to only two trees misses the reality of how dense the forest is and how hot and strong are the winds blowing towards it.
- bigbadfeline 2mo ago
  > 200 billion dollars a year on a 30 billion dollar a year business that is growing does not really sound as bad as the author makes it out to be How do you know it's not "as bad"? Whenever things got that bad a crash followed, a lot of people lost their shirts and savings. For them it's that bad and then some. Why mislead these people? > The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x and reducing inference cost by half... then simply fire software engineers. OK, I didn't know that brutal/shmutal was the only way to do business these days. If I could only get with the program, I would understand how rosy-smelly the situation is and not at all "as bad as the author makes it out to be". > The thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. Oh, wait, I thought it wasn't that bad? Which way is it? Brutal/shmutal failed to work? But, but but, you said, you promised... "not as bad". Besides, Chinese competition isn't the only way to commoditize AI, new tech developments are the single most significant risk in tech - a well known fact. > If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. Anyone who invests while convinced that only a monopoly would save his investments has got his brain screwed on backwards,
  - LarsDu88 2mo ago
    >Anyone who invests while convinced that only a monopoly would save his investments has got his brain screwed on backwards Whats the common trait between Warren Buffet and Peter Thiel? They only invest in companies that are monopolies or on their way to being monopolies. As Thiel (who very much has his head screwed on backwards) says "Competition is for losers" What does Rockerfeller, Carnegie, Gates, and Musk have in common? They own monopolies. So yes! The only way these companies are going to make their investments back is by being monopolies.
    - bigbadfeline 2mo ago
      > Warren Buffet and Peter Thiel... Past Performance Is No Guarantee of Future Results > "Competition is for losers" That's how we got where we are, losing the global competition game, high polarization, inflation, debt, and wars. Communist China managed to surge ahead mainly due to their purposeful development of a highly competitive industry and market. Oh, the irony. > The only way these companies are going to make their investments back is by being monopolies. Well, they aren't and they won't be, the game has changed. Seems like when you say "monopoly" you mean "on the US market" but that's not enough to sustain anything resembling a good life here. You may be thinking of an isolated and self-sufficient national economy but that's a mirage. The world is still global and only a major extinction event, like an all out world war, can change that - do you want to go there? Buffet, Thiel, Gates, Musk, etc have nice bunkers to hide in... you don't.
- runamok 2mo ago
  Which makes me cynically believe that all this capital being burned that has made memory, storage and GPUs in some cases 5x is a feature, not a bug. "Can't use open weight models if you can't find or afford the hardware to run them on!"
heathrow83829 2mo ago
[flagged]
quaintdev 2mo ago
I'm seeing this guy everywhere. He was on Bloomberg a day ago and then on another channel and now here. I'm curious why there are not more people like him voicing their concerns. Makes you wonder if he is completely wrong.
- comeonbro 2mo ago
  He's the Gary Marcus for this stage of the popularized denial.
- no_multitudes 2mo ago
  His history of predictions about LLMs is not great and he generally seems ideologically committed to pretending they're almost useless and teetering on the edge of collapse. For example, this article claims: "Every single story you’ve read about the “incredible growth” of these cloud platforms is an embarrassing misread of three companies that are misleading investors that will more than likely be forced in the next year or two to have to restate revenues, cut remaining performance obligations, and admit that they’ve drastically overbuilt capacity. " In july 2024, Zitron wrote at length about how the economics of OpenAI were likely to collapse in the next 1 to 2 years [1]. It seems like the nearly inevitable collapse of generative AI is always 1 to 2 years away, but it's just the details of the intricate financial argument that change. [1]: https://www.wheresyoured.at/to-serve-altman/ https://www.wheresyoured.at/to-serve-altman/
  - an0malous 2mo ago
    He said: > I am hypothesizing that for OpenAI to survive for longer than two years, it will have to (in no particular order): And listed various things like a technological breakthrough or more fundraising. I would bet he’s right that they’ll fundraise by the end of the year if they can’t IPO and pass the bag to retail investors. What the AI bulls don’t seem to understand is that AI could be a great technological achievement AND an impending economic collapse because the valuations of these companies are absurd, basically requiring them to fulfill 10% of the country’s GDP within the next couple years. The achievements are impressive but vastly outpaced by the mania.
semiquaver 2mo ago
Has ed zitron ever accounted for the fact that his predictions literally never come true? In most jobs such a poor track record would be disqualifying.
- case_ratchet 2mo ago
  I don’t know. LLMs are plenty often wrong, and some people seem to love them.
- dgellow 2mo ago
  His predictions don’t matter… what matters is the thesis and what it is based upon. Literally nobody can predict to the month or even year when a bubble will pop. But you can identify and document that a bubble exists, and what the actors are doing. When reading an article you’re supposed to analyze the actual thesis, not just evaluate if the person is an oracle or not
  - maleldil 2mo ago
    If you fervently posit a theory but its predictions fail, why would anyone believe it?
    - dgellow 2mo ago
      Because it’s economics, a social science. Not a physics experiment you can replicate in a lab. You do what a serious person does: look at the thesis, look at the sources, look at the numbers, and do your own analysis
      - semiquaver 2mo ago
        And you’d consider zitron a serious person?
        dgellow 2mo ago
        Yes, but I meant the readers. Ed Zitron himself is irrelevant, we should be able to look at the thesis and evaluate it independently. That’s media consumption 101…
LogicFailsMe 2mo ago
This guy has zero zip nada null AI background. He is a videogame reviewer and PR guy. He is a pure influencer feeding on the AI backlash he helped to create. He has been predicting a crash for how many years now? And while I can totally see Anthropic and OpenAI going through some things on the way to post-IPO FMV, those things do not include AI going away. It truly doesn't matter whether closed source Frontier lab models are spewing tokens or large foreign open weight models are doing it, the token factories will be just fine, and that's really all I care about. The question to me is why the media favors influencers like this over practitioners. And it's not like there aren't more balanced takes out there, here's just one... https://overweightskepticism.substack.com/p/ais-cash-cushion-runs-out-around https://overweightskepticism.substack.com/p/ais-cash-cushion...
- joshcsimmons 2mo ago
  Yes - correct. I have been saying this since this guy gained eminence.
- tripleee 2mo ago
  Is your ad hominem attack any better?
  - semiquaver 2mo ago
    I don’t see how “This guy has no experience in the field he is actively commentating on. None of his predictions have come to pass.” is an ad hominem. The critiques are directly relevant to the subject matter.
    - parineum 2mo ago
      Would you expect someone in the AI industry to predict the collapse of the AI industry? I'm sure there weren't a ton of bankers predicting the mortgage collapse of 2008 but I, a young programmer of mortgage software could see something was weird (but didn't realize that it wasn't the norm).
      - 2mo ago
themgt 2mo ago
Ed Zitron is like the living human embodiment of the Gell-Mann Amnesia effect, except he only talks about the one topic.
xnx 2mo ago
Ironically, AI has been great for Ed Zitron.
twothreeone 2mo ago
> I’d also argue that the vast majority of their capex exists to support these two load-bearing failsons. Gotcha.
- deleted 2mo ago
  [deleted]
jdkee 2mo ago
https://x.com/edzitron/status/1817955630784917548 https://x.com/edzitron/status/1817955630784917548
- neaden 2mo ago
  He's saying OpenAI would collapse in 12-24 months back in 2024 if they didn't raise more money than any other company in the history of the valley, but didn't they? I'll give you that it seems from what he tweeted he didn't expect them to be able to pull it off, but it also seems like he correctly laid out what they would have to do to survive, and then they did it.
- cadamsdotcom 2mo ago
  > I hypothesize that OpenAI will collapse in the next 12-24 months unless it raises more funding than in the history of the valley and creates an entirely new form of AI. That unless is pretty interesting.
gizajob 2mo ago
I’ll give him 18 months before his polemics are written with the assistance of AI and he’s holding NVDA and MU.
sixhobbits 2mo ago
[off topic] I'm a writer too and I know people have to make their money but - Huge subscribe CTA at top - In-text subscribe CTA - scroll through that get pop up in your face full page subscribe CTA - close that and continue scrolling to yet another subscribe CTA was enough to make me close the page and ask my agent for a summary rather.
- timpera 2mo ago
  It is somewhat ironic considering that he writes at length about pop-ups and the degradation of user interfaces: https://www.wheresyoured.at/what-were-fighting-for/ https://www.wheresyoured.at/what-were-fighting-for/
- jatora 2mo ago
  I, too, was hideously annoyed by this.
ElProlactin 2mo ago
> The question I want to ask anyone reading this who might have invested in or in some way backed the hyperscalers and the greater AI industry: > What is it you think you’ve gotten yourself into? Because I think you’re being sold a lie. Hundreds of thousands of dollars of realized gains. And the question I want to ask to anyone paying $70/year for Ed's newsletter: what has throwing the AI baby out with the bathwater gotten you?
- jatora 2mo ago
  I pray that he doesn't have any paying subscribers... but I dream...
jsnell 2mo ago
100% of my income in the "employment" segment is coming from a single employer. That's an unsustainable level of concentration, showing there just isn't sufficient demand for my skills. Bubble!
arctic-true 2mo ago
Several top level comments are attacks on the author’s credibility that do not engage the substance of the piece at all. I think the fundamental problem for people on all sides of the various debates surrounding AI is that “AI is a powerful, transformative technology” and “Anthropic and OpenAI are both doomed, and this poses risks to the broader economy” are compatible statements of fact. Just because you believe (1) does not justify dismissing (2) out of hand. (2) is the point of this article. OAI and Anthropic are spending by far the most money of anyone in the space, as the article rightly notes, but they have no path to becoming profitable, meaning they cannot occupy that position forever. The other entities that rely on their spending to support their own margins - in this case the major cloud providers - are vulnerable to revenue collapse if OAI and Anthropic fail. The premise most would disagree with is that the labs have no path to profitability. Two points support this: demand for inference is functionally infinite, or at least is so great that it is not meaningful to discuss its limits; and the labs are profitable on inference and are only taking losses to compete with one another. Some would extend this further and say that once the tech is good enough it will be able to drastically reduce their costs by some combination of speeding up research and creating efficiencies to reduce compute spend. These are valid criticisms. But “AI has gotten better since he started saying ‘AI bad’” is not a reason to ignore the fact that major cloud computing providers are taking on massive new debt while becoming increasingly dependent on only two customers who face meaningful margin pressures. Unless OAI and Anthropic can find a durable moat and a means to exert pricing power, this is a serious issue going forward. That is true whether we wind up with a machine god (although we might have bigger problems in that case) or if we plateau at current capabilities.
- rich_sasha 2mo ago
  I largely agree with this take. What gives me disquiet is that I thought more or less exactly this about Uber, and was proven comprehensively wrong. Despite burning money like a furnace on an app for taxis, it seems that anyone who invested privately made a handsome return, and they are at a profitable steady state. Is AI the same?
  - arctic-true 2mo ago
tim333 2mo ago
He's saying the demand is artificial because it's all from Anthropic and OpenAI but they have revenue from paying customers of about $74 bn and $49 bn annualized respectively. If those went under the customer demand would still presumably be there. And it's not like those numbers are static - they are probably up several times on a year earlier. In July 2024 Anthropic's annualized revenues were ~$0.5 bn when Ed wrote >And yes, that sound you hear is the slow deflation of the bubble I've been warning you about since March... >How does GPT – a transformer-based model that generates answers probabilistically (as in what the next part of the generation is most likely to be the correct one) based entirely on training data – do anything more than generate paragraphs of occasionally-accurate text? which illustrates how spot on he is with understanding AI.
jatora 2mo ago
First thing a blog does is ask me to subscribe. Second thing it asks for is to subscribe to their premium blog. There are 7 separate requests on one page for my information to subscribe to their blog and newsletter. The first 2 page lengths are 70% taken by subscription and premium callouts. I didn't read the article. Was too distracted and annoyed. Does this strategy actually work on people?

112 points by 7777777phil 2mo ago

This is a bit of a doomer article, but quite honestly, 200 billion dollars a year on a 30 billion dollar a year business that is growing does not really sound as bad as the author makes it out to be, especially when that business consists of growth startups that are currently primarily concerned with completely automating your current revenue stream. The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x and reducing inference cost by half (highly achievable with improved silicon and technology), then simply fire a large percentage of software engineers. From that perspective the current behavior is a bit wicked but downright logical. And having two whale customers is not really out of the ordinary for any software company... it's just the scale that is staggering. The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. Ironically, the actual thing that will likely kill OpenAI is ACTUAL OPEN AI.

altcognito 2mo ago
> The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. So much this. I've never touched the Chinese models (no particular reason) but it is having an impact as the frontier companies are pushing the price down as a defensive measure. Is this pulling forward what would have happened eventually? No idea. It is unclear how effective anyone beyond China and Mistral have been at developing cheaper, capable models. It is an expensive business. I'd be curious if anyone had any thoughts on that
- Lwerewolf 2mo ago
  Poolside's stuff (US) is pretty good.
- surgical_fire 2mo ago
  > I've never touched the Chinese models (no particular reason) but it is having an impact as the frontier companies are pushing the price down as a defensive measure I warn you that it is addictive. I am using DS and MiMo on Pi.dev, and I don't see myself going back to OpenAI. They are criminally cheap in a way that I don't care to spend tokens. That leaves me space to experiment. And in terms of capability, well... I use Sonnet and Opus at work (provided by my employer), and I see no difference in terms of what I can achieve. Well, besides Claude costing dozens of times more.
bbatha 2mo ago
> The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. OpenAI and Anthropic investors yes, however open weight models are good for cloud providers. They can turn the two large customers into direct ai services that can be spread across many customers and reduce the cloud providers overhead on ai services.
anonyfox 2mo ago
unironically sama is probably one of the most honest players here after all, he is burning money and if/when they have achieved AGI they will ask it in how to make money. its a different investor incentive story than trying to monetize into profitability right now that is indeed doomed to fail against china. Having no idea but a vision achieved is rrquired to be met to have those returns is actually the honest part here.
- dgellow 2mo ago
  If Altman seriously believes his role is to create AGI then ask how to make the company profitable, he should get removed from his position of leadership asap. That’s crazy territory. It’s a grift, “AGI will save us” is the same as Musk’s “Mars colony”, it’s not supposed to ever happen, it’s supposed to be a goal post they ever move further
  - derektank 2mo ago
    He said the following in 2019, at a StrictlyVC event, “The honest answer is we have no idea, we have never made any revenue, we have no current plans to make revenue, we have no idea how we may one day generate revenue. We have made a soft promise to investors that once we've built this sort of generally intelligent system, basically we will ask it to figure out a way to generate an investment return for you. It sounds like an episode of Silicon Valley it really does I get it, you can laugh, it's all right, but it is what I actually believe is going to happen” Whether or not that’s his current view, who knows, but everyone who’s invested in OpenAI since should have known that this was at least part of his mental model. https://youtu.be/gjQUCpeJG1Y?is=--fubVyvQnC8rgse https://youtu.be/gjQUCpeJG1Y?is=--fubVyvQnC8rgse
    - dgellow 2mo ago
      Yeah, though that was before the shift to a for profit organization
  - tim333 2mo ago
    >It’s a grift, “AGI will save us” ... goal post... It's not really like that, at least the fundamentals, not necessarily what Altman / Musk say. The significant point is when AI/robots can do what we do without us and improve themselves even if humans disappear. That'll be a new era on Earth.
actapp80 2mo ago
> The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models. The monopoly will likely then shift from the model to the compute, i.e. who has the GPUs to serve inference at scale from the open weight models. The cloud compute giants have basically bought everything that Nvidia, Broadcom etc. have to offer. Currently, the inference margins are shared between the cloud giants and OpenAI/Anthropic. But if training great models becomes easier for some reason, the cloud giants benefit. Then they'll have used the OpenAI/Anthropic revenue and spending commitments to grow their cloud business, and then can serve other models and make even more money. Given that OpenAI and Anthropic are private, I don't think there is any risk to retail investors in this scenario. AI not turning out to be so useful, and OpenAI/Anthropic not being able to pay their bills is the correct failure scenario i think, as identified by the author.
- LarsDu88 2mo ago
  The hyperscalers already had the compute monopoly. They just spent a bunch of money on even more compute. Compute is OK because it's reasonably general purpose to reallocate for what comes after chatbots (e.g. consumer robotics which is reasonably likely to take off in the next 4 years).
  - derdi 2mo ago
    What kind of robots are we talking about? What will robots do for me five years from today?
    - LarsDu88 2mo ago
      Literally everything chatbots don't do along with everything chatbots currently do. They will gradually go from doing your dishes, to contructing an ADU in your backyard by 2040 System 2 (thoughtful slow planning) has already been cracked with VLA models. The seemingly easier system 1 (fast reactive) will be figured out in months... maybe with JEPA
InsideOutSanta 2mo ago
> that is growing It seems like user numbers are stagnating, and the ad play isn't working out so far. Where is the revenue growth coming from? I don't think API can be the answer, because API has absolutely no switching costs. > The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x Presumably, that was the plan, but I don't see how that can possibly work with how quickly the Chinese models caught up.
- dubeye 2mo ago
  revenue is probably the better indicator of whether revenue is growing or not
  - InsideOutSanta 2mo ago
    These companies don't disclose revenue.
- xethos 2mo ago
  > API has absolutely no switching costs. Were that true, many embedded maps would have switched to OSM instead of Google Maps after Google massively increased costs. Adding your business to OSM is free, and API costs would fall pretty dramatically
  - InsideOutSanta 2mo ago
    I'm talking about inference APIs.
dgellow 2mo ago
> The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. Not in this specific article but Ed Zitron has been talking about open models quite a lot
zozbot234 2mo ago
> The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. I disagree that "the entire endeavor" is inherently doomed for Anthropic and OpenAI. There will always be a very top end of the market running humongous models (like the recently-teased OpenAI Astra and perhaps including future versions of the existing Claude Mythos) that's too large-scale to be successfully commoditized, and that's exactly where the ongoing investments in AI datacenter compute and model training are most likely to pay off at some point. Video generation is another emerging AI area that seems to require large-scale compute, though the value proposition is definitely iffy there.
- LarsDu88 2mo ago
  There may be a market for the super models, but the reality is, the super models and the merely ok models already saturate on lower levels tasks. You don't need Fields math PhDs to make you a web app or plan your vacation. The remaining frontiers for high value ROI are ultra long horizon tasks, and lower cost faster inference. The former will rely on better architectures which will likely also get commoditized. The latter will probably be led by Chinese companies which already own most of the electronics manufacturing supply chain. Video generation was already tried by OpenAI and was enormous bust. It busted so hard the current leading proprietary videogen model is Chinese, and the best open weight videogen model is also Chinese.
1vuio0pswjnm7 2mo ago
"And having two whale customers is not really out of the ordinary for any software company... it's just the scale that is staggering." Does the Apple lawsuit over trade scret theft, including secrets concerning "metal-finishing finishing process", suggest that this "software company" may have plans to sell hardware
- 1vuio0pswjnm7 2mo ago
  *secret
supern0va 2mo ago
>The actual risk that the author does not even broach upon for investors... the thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. This is the thing: let's just reason it out. What if OpenAI and Anthropic both fail and end up in bankruptcy? What is the impact to the hyperscalers? ...they just start selling open weight model inference to businesses, or whatever other entity picks up the scraps from the collapsed labs. It's abundantly evident that there's major demand for compute, and that it isn't going anywhere.
- LarsDu88 2mo ago
  I think the nuance that's being missed here is that the profit margin of inference serving when there's perfect competition is close to 0. Zero profit means no recouping investment costs effectively bursting the bubble. Technological progress can come at extreme pace but the lack of profits can still torch both the startup frontier labs and the hyperscalers. We plebians can then pick up H100 gpus off Ebay to help us invent new superconductors and generate waifu videos in pur basement...
  - pu_pe 2mo ago
    Profit margin determines whether OpenAI and Anthropic survive. The hyperscalers would be fine with a model where they make huge investments in infrastructure and you pay to access them per use/per hour. That is already their model for cloud compute and it is highly profitable, even though the vast majority of what people do with it (storage, VMs, etc.) is a commodity.
    - bigbadfeline 2mo ago
      > The hyperscalers would be fine... their model for cloud compute... is highly profitable. "fine" and "highly profitable" are doing a whole lot of heavy lifting here, actually masking the quantitative reality that these "high profits" are nowhere near the height required to pay back their debts and remain profitable enough to prevent a sharp drop of their stock prices - that kind of development is the opposite of "fine" as far as investors, ordinary people and the wider economy are conserned. > Profit margin determines whether OpenAI and Anthropic survive. The hyperscalers would be fine. That's not how the market works, if OAI or Anthro default, they'll bring down the whole market, it'll be 2008 on steroids. Assuming the fire can be contained to only two trees misses the reality of how dense the forest is and how hot and strong are the winds blowing towards it.
bigbadfeline 2mo ago
> 200 billion dollars a year on a 30 billion dollar a year business that is growing does not really sound as bad as the author makes it out to be How do you know it's not "as bad"? Whenever things got that bad a crash followed, a lot of people lost their shirts and savings. For them it's that bad and then some. Why mislead these people? > The obvious way to recoup spend is to grow, rugpull by cranking up costs 6x and reducing inference cost by half... then simply fire software engineers. OK, I didn't know that brutal/shmutal was the only way to do business these days. If I could only get with the program, I would understand how rosy-smelly the situation is and not at all "as bad as the author makes it out to be". > The thing that will actually torpedo this massive investment are the open source open weight chinese models that commoditize the entire endeavor. Oh, wait, I thought it wasn't that bad? Which way is it? Brutal/shmutal failed to work? But, but but, you said, you promised... "not as bad". Besides, Chinese competition isn't the only way to commoditize AI, new tech developments are the single most significant risk in tech - a well known fact. > If you don't have a monopoly, you cannot rugpull and 6x the costs on the consumer. Anyone who invests while convinced that only a monopoly would save his investments has got his brain screwed on backwards,
- LarsDu88 2mo ago
  >Anyone who invests while convinced that only a monopoly would save his investments has got his brain screwed on backwards Whats the common trait between Warren Buffet and Peter Thiel? They only invest in companies that are monopolies or on their way to being monopolies. As Thiel (who very much has his head screwed on backwards) says "Competition is for losers" What does Rockerfeller, Carnegie, Gates, and Musk have in common? They own monopolies. So yes! The only way these companies are going to make their investments back is by being monopolies.
  - bigbadfeline 2mo ago
    > Warren Buffet and Peter Thiel... Past Performance Is No Guarantee of Future Results > "Competition is for losers" That's how we got where we are, losing the global competition game, high polarization, inflation, debt, and wars. Communist China managed to surge ahead mainly due to their purposeful development of a highly competitive industry and market. Oh, the irony. > The only way these companies are going to make their investments back is by being monopolies. Well, they aren't and they won't be, the game has changed. Seems like when you say "monopoly" you mean "on the US market" but that's not enough to sustain anything resembling a good life here. You may be thinking of an isolated and self-sufficient national economy but that's a mirage. The world is still global and only a major extinction event, like an all out world war, can change that - do you want to go there? Buffet, Thiel, Gates, Musk, etc have nice bunkers to hide in... you don't.
runamok 2mo ago
Which makes me cynically believe that all this capital being burned that has made memory, storage and GPUs in some cases 5x is a feature, not a bug. "Can't use open weight models if you can't find or afford the hardware to run them on!"

heathrow83829 2mo ago

[flagged]

quaintdev 2mo ago

I'm seeing this guy everywhere. He was on Bloomberg a day ago and then on another channel and now here. I'm curious why there are not more people like him voicing their concerns. Makes you wonder if he is completely wrong.

comeonbro 2mo ago
He's the Gary Marcus for this stage of the popularized denial.
no_multitudes 2mo ago
His history of predictions about LLMs is not great and he generally seems ideologically committed to pretending they're almost useless and teetering on the edge of collapse. For example, this article claims: "Every single story you’ve read about the “incredible growth” of these cloud platforms is an embarrassing misread of three companies that are misleading investors that will more than likely be forced in the next year or two to have to restate revenues, cut remaining performance obligations, and admit that they’ve drastically overbuilt capacity. " In july 2024, Zitron wrote at length about how the economics of OpenAI were likely to collapse in the next 1 to 2 years [1]. It seems like the nearly inevitable collapse of generative AI is always 1 to 2 years away, but it's just the details of the intricate financial argument that change. [1]: https://www.wheresyoured.at/to-serve-altman/ https://www.wheresyoured.at/to-serve-altman/
- an0malous 2mo ago
  He said: > I am hypothesizing that for OpenAI to survive for longer than two years, it will have to (in no particular order): And listed various things like a technological breakthrough or more fundraising. I would bet he’s right that they’ll fundraise by the end of the year if they can’t IPO and pass the bag to retail investors. What the AI bulls don’t seem to understand is that AI could be a great technological achievement AND an impending economic collapse because the valuations of these companies are absurd, basically requiring them to fulfill 10% of the country’s GDP within the next couple years. The achievements are impressive but vastly outpaced by the mania.

semiquaver 2mo ago

Has ed zitron ever accounted for the fact that his predictions literally never come true? In most jobs such a poor track record would be disqualifying.

case_ratchet 2mo ago
I don’t know. LLMs are plenty often wrong, and some people seem to love them.
dgellow 2mo ago
His predictions don’t matter… what matters is the thesis and what it is based upon. Literally nobody can predict to the month or even year when a bubble will pop. But you can identify and document that a bubble exists, and what the actors are doing. When reading an article you’re supposed to analyze the actual thesis, not just evaluate if the person is an oracle or not
- maleldil 2mo ago
  If you fervently posit a theory but its predictions fail, why would anyone believe it?
  - dgellow 2mo ago
    Because it’s economics, a social science. Not a physics experiment you can replicate in a lab. You do what a serious person does: look at the thesis, look at the sources, look at the numbers, and do your own analysis
    - semiquaver 2mo ago
      And you’d consider zitron a serious person?
      - dgellow 2mo ago
        Yes, but I meant the readers. Ed Zitron himself is irrelevant, we should be able to look at the thesis and evaluate it independently. That’s media consumption 101…

LogicFailsMe 2mo ago

This guy has zero zip nada null AI background. He is a videogame reviewer and PR guy. He is a pure influencer feeding on the AI backlash he helped to create. He has been predicting a crash for how many years now? And while I can totally see Anthropic and OpenAI going through some things on the way to post-IPO FMV, those things do not include AI going away. It truly doesn't matter whether closed source Frontier lab models are spewing tokens or large foreign open weight models are doing it, the token factories will be just fine, and that's really all I care about. The question to me is why the media favors influencers like this over practitioners. And it's not like there aren't more balanced takes out there, here's just one... https://overweightskepticism.substack.com/p/ais-cash-cushion-runs-out-around https://overweightskepticism.substack.com/p/ais-cash-cushion...

joshcsimmons 2mo ago
Yes - correct. I have been saying this since this guy gained eminence.
tripleee 2mo ago
Is your ad hominem attack any better?
- semiquaver 2mo ago
  I don’t see how “This guy has no experience in the field he is actively commentating on. None of his predictions have come to pass.” is an ad hominem. The critiques are directly relevant to the subject matter.
  - parineum 2mo ago
    Would you expect someone in the AI industry to predict the collapse of the AI industry? I'm sure there weren't a ton of bankers predicting the mortgage collapse of 2008 but I, a young programmer of mortgage software could see something was weird (but didn't realize that it wasn't the norm).
    - 2mo ago

themgt 2mo ago

Ed Zitron is like the living human embodiment of the Gell-Mann Amnesia effect, except he only talks about the one topic.

xnx 2mo ago

Ironically, AI has been great for Ed Zitron.

twothreeone 2mo ago

> I’d also argue that the vast majority of their capex exists to support these two load-bearing failsons. Gotcha.

deleted 2mo ago
[deleted]

jdkee 2mo ago

https://x.com/edzitron/status/1817955630784917548 https://x.com/edzitron/status/1817955630784917548

neaden 2mo ago
He's saying OpenAI would collapse in 12-24 months back in 2024 if they didn't raise more money than any other company in the history of the valley, but didn't they? I'll give you that it seems from what he tweeted he didn't expect them to be able to pull it off, but it also seems like he correctly laid out what they would have to do to survive, and then they did it.
cadamsdotcom 2mo ago
> I hypothesize that OpenAI will collapse in the next 12-24 months unless it raises more funding than in the history of the valley and creates an entirely new form of AI. That unless is pretty interesting.

gizajob 2mo ago

I’ll give him 18 months before his polemics are written with the assistance of AI and he’s holding NVDA and MU.

sixhobbits 2mo ago

[off topic] I'm a writer too and I know people have to make their money but - Huge subscribe CTA at top - In-text subscribe CTA - scroll through that get pop up in your face full page subscribe CTA - close that and continue scrolling to yet another subscribe CTA was enough to make me close the page and ask my agent for a summary rather.

timpera 2mo ago
It is somewhat ironic considering that he writes at length about pop-ups and the degradation of user interfaces: https://www.wheresyoured.at/what-were-fighting-for/ https://www.wheresyoured.at/what-were-fighting-for/
jatora 2mo ago
I, too, was hideously annoyed by this.

ElProlactin 2mo ago

> The question I want to ask anyone reading this who might have invested in or in some way backed the hyperscalers and the greater AI industry: > What is it you think you’ve gotten yourself into? Because I think you’re being sold a lie. Hundreds of thousands of dollars of realized gains. And the question I want to ask to anyone paying $70/year for Ed's newsletter: what has throwing the AI baby out with the bathwater gotten you?

jatora 2mo ago
I pray that he doesn't have any paying subscribers... but I dream...

jsnell 2mo ago

100% of my income in the "employment" segment is coming from a single employer. That's an unsustainable level of concentration, showing there just isn't sufficient demand for my skills. Bubble!

arctic-true 2mo ago

Several top level comments are attacks on the author’s credibility that do not engage the substance of the piece at all. I think the fundamental problem for people on all sides of the various debates surrounding AI is that “AI is a powerful, transformative technology” and “Anthropic and OpenAI are both doomed, and this poses risks to the broader economy” are compatible statements of fact. Just because you believe (1) does not justify dismissing (2) out of hand. (2) is the point of this article. OAI and Anthropic are spending by far the most money of anyone in the space, as the article rightly notes, but they have no path to becoming profitable, meaning they cannot occupy that position forever. The other entities that rely on their spending to support their own margins - in this case the major cloud providers - are vulnerable to revenue collapse if OAI and Anthropic fail. The premise most would disagree with is that the labs have no path to profitability. Two points support this: demand for inference is functionally infinite, or at least is so great that it is not meaningful to discuss its limits; and the labs are profitable on inference and are only taking losses to compete with one another. Some would extend this further and say that once the tech is good enough it will be able to drastically reduce their costs by some combination of speeding up research and creating efficiencies to reduce compute spend. These are valid criticisms. But “AI has gotten better since he started saying ‘AI bad’” is not a reason to ignore the fact that major cloud computing providers are taking on massive new debt while becoming increasingly dependent on only two customers who face meaningful margin pressures. Unless OAI and Anthropic can find a durable moat and a means to exert pricing power, this is a serious issue going forward. That is true whether we wind up with a machine god (although we might have bigger problems in that case) or if we plateau at current capabilities.

rich_sasha 2mo ago
I largely agree with this take. What gives me disquiet is that I thought more or less exactly this about Uber, and was proven comprehensively wrong. Despite burning money like a furnace on an app for taxis, it seems that anyone who invested privately made a handsome return, and they are at a profitable steady state. Is AI the same?
- arctic-true 2mo ago

tim333 2mo ago

He's saying the demand is artificial because it's all from Anthropic and OpenAI but they have revenue from paying customers of about $74 bn and $49 bn annualized respectively. If those went under the customer demand would still presumably be there. And it's not like those numbers are static - they are probably up several times on a year earlier. In July 2024 Anthropic's annualized revenues were ~$0.5 bn when Ed wrote >And yes, that sound you hear is the slow deflation of the bubble I've been warning you about since March... >How does GPT – a transformer-based model that generates answers probabilistically (as in what the next part of the generation is most likely to be the correct one) based entirely on training data – do anything more than generate paragraphs of occasionally-accurate text? which illustrates how spot on he is with understanding AI.

jatora 2mo ago

First thing a blog does is ask me to subscribe. Second thing it asks for is to subscribe to their premium blog. There are 7 separate requests on one page for my information to subscribe to their blog and newsletter. The first 2 page lengths are 70% taken by subscription and premium callouts. I didn't read the article. Was too distracted and annoyed. Does this strategy actually work on people?