This Fatal Flaw Could Kill The AI Industry

🌈 Abstract

The article discusses the financial challenges facing the AI industry, arguing that despite the hype and massive investments, AI companies are unlikely to become truly profitable due to the exponentially growing costs of infrastructure and operations.

🙋 Q&A

[01] The Financial Challenges of AI

1. What are the key financial issues facing AI companies according to the article?

• OpenAI is spending $700,000 per day just to maintain the infrastructure for ChatGPT, while its annual revenue is only predicted to be $200 million, meaning it will continue to run at a loss of hundreds of millions per year.
• Even with OpenAI's recent revenue increase to $3.4 billion, its operational costs have also skyrocketed, and there are no signs of the company reaching profitability.
• The major AI companies (Google, Meta, Microsoft, AWS, OpenAI) are set to spend $150 billion on GPUs by the end of this year, but they need to generate an additional $600 billion in revenue to see a reasonable return on this investment.
• AI is predicted to only improve US productivity by 0.5% and increase US GDP by 0.9% over the next decade, making the $600 billion revenue increase impossible.
• Investors expect these companies to only generate an additional $20 billion in revenue, while spending $60 billion on chips and data centers.

2. Why are the costs of AI expected to continue growing exponentially?

• As AI improves, it will find more use cases and customers, but this also requires exponentially more training data and infrastructure, leading to exponentially growing costs.
• The diminishing returns of AI development mean that even marginal improvements require exponentially more resources, making the costs of operating cutting-edge AI systems continue to rise.

3. What is the potential impact of the AI industry's financial challenges?

• The gap between AI expenditure and revenue is only set to grow, which could eventually "kill the AI industry" as AI companies fail to balance their books despite the hype and promises of revolutionizing the future.
• When the "bubble eventually pops", it will not hurt the AI leaders and investors who are cashing out, but rather tank the industry and ruin the careers of thousands, with everyday investors losing their hard-earned cash.

[02] The Motivations of AI Leaders and Investors

1. What are the motivations of AI leaders like Altman and Musk according to the article?

• They are "gaining the stock markets, making their companies worth way more than they should be, and attracting vast swathes of investment, all so they can cash out before the House of Cards collapses."

2. What is the motivation of the investment banks and VCs according to the article?

• They "know this, too, and are betting they can sell off at the right moment" before the AI bubble pops.
• The examples of them "sounding the alarm bell" are not really to warn the world, but to ensure they can cash out at the peak.