This is a most excellent place for technology news and articles.
I think those IPOs are meant to bring in enough money to give the founders and managers golden parachutes before the whole system folds.
They don't make any money - on the contrary - and they won't miraculously start making it just because the IPO happened.
You're thinking too long term. IPOs are the C suite cashing out.
Even the street corner hustler knows you give the first rock out for free.
They also know not to spend trillions making the product.
Hey, cocaine and baking soda ain't cheap you know. Plus you got to have a microwave and shit. Overhead is crazy like that.
/s
Here's the problem... He says AI was adopted beyond his expectations. Great.
But if somebody is using it at the current price point of super cheap or free, are they going to keep using it when it gets expensive?
You can make a basic chatbot run on a desktop PC, but nobody wants to pay for that. Once you get into things with useful generation and large context windows, or things like video generation, suddenly you need one or more $10,000+ pieces of hardware to run it. So the $10 a month you charge the user is basically an introductory price that doesn't cover your hardware fees let alone the software engineers to build your AI.
Eventually, the bill comes due. Eventually, you have to look at your customers and how much machine time they use each month and how much your r&d costs and figure out what the actual cost to the customer has to be. And then the customer rethinks how useful the AI is or isn't.
People will pay $10 a month for chat GPT to write their emails. Will they pay $100 a month?
What about the company that replaced all their software developers with AI. Suddenly the AI cost as much or more as the software developers. Only now the developers who understood the code base work for other companies.
There will be a fun correction when this happens.
Once you get into things with useful generation and large context windows, or things like video generation, suddenly you need one or more $10,000+ pieces of hardware to run it.
A Blackwell server with 72 GPUs costs about $3 million, plus requires 130 kW of power (about 3 residential homes' max rated power through a residential 200A circuit box, for about $600-$1000/day in electricity cost).
You're gonna need to sell a lot of $20/month subscriptions to get that paid for, assuming that the server is good for 5 years. If it's only good for 3 years, the economics are basically impossible.
... assuming that the server is good for 5 years. If it's only good for 3 years, the economics are basically impossible.
And surely the big AI companies wouldn't decide that hardware rated for ~3 years should be amortized over 5-6 years in order to massively inflate their value on paper.
I'm sure Bernie Madoff's fund had an 'accounting puzzle' too.
I love how the publications call it a 'puzzle' rather than what it so obviously is- a bunch of people throwing $billions at tech they don't understand which has no serious road to profitability anytime soon.
If it’s only good for 3 years, the economics are basically impossible.
Also consider that as models improve, the newer frontier models that are doing actual useful work require significantly more compute and RAM than basic chat bots...
I am no AI fan, but I do not see this going away. I think if you can get enough people addicted, they will pay costs if the costs seem nominal at first.
If someone can’t write well and has an upcoming deadline for an essay or needs to write an important document, they might use a one-time fee. If someone uses it for day-to-day decision making, they will certainly do a subscription if it seems cheap at first. And once you have those people expecting to pay, the price keeps increasing every couple of years.
Example a - Facebook. Rolled out as an entirely free service and enrolled billions of members. Now enough people pay for extras in things as stupid as Candy Crush that they can tack millions onto their revenue for nearly no benefit provider. If enough people pay $1 for something stupid, it pays off
Example b - Prime streaming services. It was a free tack-on to people with Prime memberships. So people bought Fire sticks and use it as a home base. And now they are so cemented into the system and don’t know how to use an alternative so they will pay for 1) extra apps that will show the program they want, which will pay Amazon a fee and 2) pay extra for no ads now that they are addicted
I also have no doubt that advertising can be baked into AI. Just wait until it writes a pathology report and recommends a certain brand name medication, or gives someone a to-do list for hosting a Christmas party with specific brands and desired trends listed.
As for video generation, I think you have a small enough pool that does this anyway, and this will increasingly be consolidated by price towards a handful of powerful individuals who want to sway public influence.
You and I may not pay for it, but have no doubt you can get similar adoption to streaming services and you can get people to pay for anything if it feels cheap enough to be nothing money. I’ve become a cynical old fart and I’ve watched this song and dance too many times.
I think the price point is where your theory falls apart. The AI companies are spending far more than Netflix and they will need to charge more than the average family can afford in order to turn a profit. (Especially in the US where people are struggling to pay for gas and groceries right now.)
Take a look at the new token-based business services. People are blowing through their monthly allotment in a couple of days doing the same things they had been doing previously. Businesses won't be able to afford increasing their AI spending by 10x to keep up.
Advertising is already baked into AI. There just need to switch it in fully. That’s coming.
People will pay $10 a month for chat GPT to write their emails.
They won't even pay that in many cases but instead rely on the free offerings. Expect those to go away altogether, to be heavily hamstring, or to become absolutely riddled with advertisements.
On the code development front it's even worse as now you have an unpredictable cost based on token consumption rather than the predictable cost of a salary and have no leverage to negotiate the cost.
I'm excited to see the PE Ratios after these IPOs. We're already well into dot.com absurdity, but throw in some multi-trillion market caps with negative earnings?
Really? Has anyone mentioned that to Tesla? Or to whoever is in the government that keeps giving him billion dollar contracts?
Oh you mean the Tesla with a PE Ratio of 382 (20 times the industry average), a PEG of 16, P/B to 18, massive insider stock dumps, and is still down YTD? Tesla still has power because of their stranglehold on charging. AI companies have insane costs and people souring on them as they either lose their jobs or see their companies’ costs go up as a result, all without solid ROIs and strong buyers remorse.
And Trump/Hegseth keep giving them contracts because they’re idiots
Is the real hope that AI will be a subscription service? Those subscription billionaires ain't got a clue. Let's change "At some point you've got to make money" to "At some point you've got to add value".
Based on what? Spotify took what, 16 years to turn a profit?
Money stopped working like you expect it to a long time ago.
Come on now, Nvidia is making money. Nvidia then just gives it back to them to make more money is all.
Yeah, Nvidia invests in Open AI, Open AI uses that money to buy Nvidia chips. More people invest in Nvidia because it's revenue keeps growing.
Charles Ponzi would be proud.
Alan and Beth, two economists are walking through some woods. They come across s pile of shit and Alan says to Beth “if you eat that shot I’ll give you a tenner”
“Okay,” says Beth. She eats the shit and Alan hands her a £10 note
They walk on for a bit and find another pile of shit. Beth says to Alan “now I’ll give you a tenner of you eat that pile of shit”
“Okay,” says Alan. He eats the shit and Beth hands the £10 note back to him
They walk on a bit further and Beth says “you know, it seems to me like we both just ate a pile of shit and nobody gained anything”
“Ah, that’s where you’re wrong,” says Alan “we’ve increased the GDP by £20”
Wasn't his full name Charles Ponzi-Scheme?
wow these guys seem to hate it all of a sudden, what changed...
They road the wave up, now they are wanting to exit before it crashes
Exactly that. If they do an IPO, they either will continue to waste the new shareholders money like they did with their own, or they actually have to make money, which would imply to raise prices at least ten- to twentyfold while hoping to keep all customers on board.
I don't think either of these ways will go.
I'd like to know what they are promising in their IPO prospect...
Times running out? No, it’s out.
The market can remain irrational longer than you can remain solvent.
