OpenAI Might Be About To Pop The AI Bubble

🌈 Abstract

The article discusses the potential financial troubles facing OpenAI, the leading AI company behind ChatGPT, and the potential ripple effects on the broader tech industry and economy if the company were to go bankrupt or require a bailout.

🙋 Q&A

[01] OpenAI's Meteoric Rise and Potential Downfall

1. What has driven the current cultural, economic, and financial obsession with AI?

• The article states that OpenAI's meteoric rise has pushed big tech companies to invest heavily in AI, driving the current obsession with the technology.

2. What are the signs that AI may not be as profitable as investors have claimed?

• Studies have shown that AI is too expensive to replace the vast majority of jobs, with only 23% of workers' wages potentially replaceable by AI.
• Even when AI replaces human workers, it does not actually increase productivity due to the need for extensive human oversight to catch and correct errors.

3. What are the financial challenges facing OpenAI?

• Despite generating significant revenue, OpenAI's costs for building, developing, and running its AI models are so high that the company operates firmly in the red.
• The company has spent over $7 billion on AI training and $1.5 billion on staffing, with running its main product, ChatGPT, costing over $700,000 daily.
• As a result, OpenAI is projected to make an operational loss of £5 billion by the end of the year and could potentially face bankruptcy.

[02] Potential Ripple Effects of OpenAI's Downfall

1. How could OpenAI's financial troubles impact the broader tech industry and economy?

• If OpenAI goes bankrupt or requires a bailout, it could diminish market faith in other AI projects, as the company is seen as the figurehead of the AI world.
• Big tech companies, such as Microsoft, Alphabet, Meta, and Amazon, have invested heavily in AI, spending over $189 billion on it in 2024 alone, which represents 21% of the total capital expenditure of the S&P 500.
• The article suggests that if these companies have to shoulder the "rotten bet" on AI, it could lead to a dip in the S&P 500, which is intrinsically linked to various aspects of the economy, including pensions, the job market, and the housing market.