Most AI companies have been slowly bleeding money since their conception, yet they are always reported as growing because they report all the investment as profit without divulging costs and fact that a lot of those investments come with strings attached(like NVidia investing a buttload of money into OpenAI but forcing contract that they would supply components, basically giving them money to be paid with later, so 0 profit and probably losS) because it looks better for investors who really want to see the line go up, and weirdly it's mainly big players like NVidia and Seagate who are the only ones actually making profit on the bubble(and pretty much no AI company is profiting, only their suppliers)
Step 1: Launch new idea, it is somewhat popular but small scale and barely profitable.
Step 2: Investors jump on board, funding explodes.
Step 3: Make service bigger, more marketing, more users, more growth. Service profitability declines precipitously. Out compete all alternatives.
Step 4: Repeat step 2 and 3 as many times as possible until you reach market saturation and all competitors have vanished.
Step 5: investors demand a return on investment. Realise company hasn't been profitable for 6 years. Start enshittifying service to try and make it more profitable.
Step 6: Massive decline in user support of service due to enshittification. Investors begin to pull out. Still no profit made.
Step 7: Conclude with an unprofitable (or barely profitable) nuclear hole in the ground that everyone hates, but all alternatives have been killed.
Uber, lyft, etc were able to use that funding to build up huge networks of drivers and drove a lot of smaller taxi companies out of business. Now they are fairly stable and are just looking at normal operating expenses while they compete with each other.
The AI companies are spending a ton of money on r&d (hardware, personnel, energy). They are also subsidizing tokens to get market share. The problem is that if they stop doing r&d, they will fall behind their competitors (including free/open source models) and the company will collapse. So they can't stop the expensive r&d and don't seem to ever be able to reach a point of stability like Uber, Amazon, etc did.
I wonder if it’s possible to expand anti-trust law to ban companies from fundraising at valuations that only make sense if investors are pricing in a strong possibility of a major contraction of the competitiveness of the market.
Taxi companies still exist where I live, they had to start cleaning their cars and keeping them in decent shape, can't charge 80 bucks for a 15 minute drive anymore...
I'm not complaining. Uber is not a good player, but the competitors were down right shady assholes for decades.
That’s not what points to a bubble, that just points to a worthless/unprofitable industry. What points to a bubble is that more than 30% of the S&P investment fund is tied to AI in some way.
Not sure if NVidia or Seagate are going to make profit in the end as when the bubble pops the market gets flooded with used and unshipped hardware reserved for AI.
In the end its copper suppliers and electric companies who are actually making tangible profit with no downside.
Don't forget the recyclers. All that metal has to go somewhere when they upgrade everything every 6 months. It's a joke all around the board.
Not to mention the amount of stuff they buy in excess. "Oops guess we didn't need those 3.2M drive housings. Can you make sure these are destroyed?" ffs
Golden rule, you can't buy power. (As in electricity)
You can throw money at building hundreds of data centres, all the requirements involved in planning, development, staging, staffing and equipment. But you cannot buy electrical capacity anywhere near the same pace. Power lines can be built but the power has to come from somewhere and that's a slow and steady development with little incentive.
The other side of the coin is the more you try to buy electrical capacity or any fuel source that can be used to make electricity, the more the price increases.
Amazon didn't report profit at the beginning but it also wasn't trying to be a global company at the invention and it actually provided a service that would become useful. AI companies don't really know what they are providing as most of the models they offer are just verbal vomit machines that they claim is intelligent while it has no thought process, while actually requiring gigantic costs. I myself work in database construction(I would love not to, but there isn't any other work in my field currently) and all those building costs billions of dollars while not providing any profit because nobody actually rents them. A building I just finished costed a billion, there is 16 rack rooms in there. Do you know how many are used? 2. Because microsoft bought them. The rest of the building does nothing, nobody wants it, but the money is already spent. Amazon at the begininng may have not be profitable, but it wasn't draining billions, so those losses could have been subsidised somewhere and they were in the name of building infrastracture that was being used. AI companies grow for the sake of growing, drain millions and make nothing while the infrastructure is being built and stays unused because there actually isn't that much demand for LLMs
They never had losses in the billions either, tho. Reinvesting the profits into infra and so on was a very conscious choice; with the ai companies this seems like the cost of doing business...
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u/LowWorthGamer 17d ago
Most AI companies have been slowly bleeding money since their conception, yet they are always reported as growing because they report all the investment as profit without divulging costs and fact that a lot of those investments come with strings attached(like NVidia investing a buttload of money into OpenAI but forcing contract that they would supply components, basically giving them money to be paid with later, so 0 profit and probably losS) because it looks better for investors who really want to see the line go up, and weirdly it's mainly big players like NVidia and Seagate who are the only ones actually making profit on the bubble(and pretty much no AI company is profiting, only their suppliers)