Picture it. Your investment portfolio, 2002.
After an obscenely long bull run, the US economy began tanking at dotcom stocks began tanking. The dotcom market was sinking, dragging down shady investors like Enron, and legitimate investors alike.
The US economy brought down the global economy and for a solid 4 years, the economy was stuck in recovery until witnessing the real estate bubble of 2007.
The same bubble indicators: runaway company valuations, tons of mom and pop money, and flaky business models are harbingers of an AI bubble that’s ready for bursting.
Big Numbers with No Sales
It’s no secret AI companies are the new hotness. We’ve reported how it seems new AI firms are springing up on a weekly basis. AI startups have attracted over $330 billion in investment. That $330 billion is spread across 26,000 so called firms specializing in AI.
In typical Wall Street fashion, investors have been impatient and waiting to realize returns that have yet to materialize. Reminiscent of the dotcom era, AI firms have staggering technology costs that go beyond standard business costs. In addition to expensive human resource costs, AI firms pay massive amounts of money for the computing needed to build, train, and test AI models.
Anthropic AI is a startup made up of former OpenAI employees that has an annual spend of $2 billion while only bringing in $200 million of revenue. Startup investors typically expect a hockey stick growth curve with the first several years being negative growth, followed by a sharp and steady upward trajectory.
Unfortunately, like many dotcom companies, sustainable business models have been in short supply.
Benefits for the Future
There’s a bright spot, however. Our current economy built on high speed networks, streaming, and advanced software technology has the failed dotcom era to thank. In anticipation of new applications and services, telecom and software companies raced to build network and server capacity for Internet-scale.
The services eventually came. A decade and more later. The excess capacity built during this era enables Siri and Google to tell us where we want to go. The current crop of AI startups are benefiting from this overcapacity and are only now beginning to push it.
I believe we’re witnessing the same thing.
No one has come up with a killer app for AI/ML other than getting rid of humans. Anthropic, OpenAI, and the 25,998 other startups are creating the foundation for a new generation of products and services we haven’t invented yet.