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Ask HN: What Makes AI a Bubble?

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Ask HN: What Makes AI a Bubble?

#1

Post by atleastoptimal »

A lot of people seem to take it as a given that the AI bubble will "pop", leading to a mass devaluation of AI companies from their current peaks.

What I'm confused about though is what makes current AI evaluations a bubble.

Bubbles usually exists when future speculation outpaces productivity: eventually some realization leads the market to no longer believe in that future speculation, causing devaluation which triggers a mass sell-off.

However, AI companies currently have very high revenues and are growing extremely fast. Their valuation is backed by actual commerce. I can't imagine that there is any room for a bubble, as it is very clear where the market is at, and why demand for AI is so high.

Now, certain specific companies I can imagine losing a lot of valuation, but only contingent on the fact that they serve a middle-man role in the market that improvements in the underlying AI models will solve, which would likely only mean more revenue for the frontier labs, and thus less reason for a bubble.

Re: Ask HN: What Makes AI a Bubble?

#4

Post by akerl_ »

atleastoptimal wrote: post #3
akerl_ wrote: post #2

> Their valuation is backed by actual commerce. Is it?

I think their annualized revenue is 25 billion with 3.4x yearly growth, with 1 billion weekly active users

You were talking about actual commerce, though.

Is that revenue actually tied to something in the market, or is it just all of these companies and investors blowing air into the bubble?

Re: Ask HN: What Makes AI a Bubble?

#5

Post by benoau »

atleastoptimal wrote: post #3
akerl_ wrote: post #2

> Their valuation is backed by actual commerce. Is it?

I think their annualized revenue is 25 billion with 3.4x yearly growth, with 1 billion weekly active users

Hasn't it cost them $100s of billions to earn that money? Don't they need $100s of billions more to keep the ball rolling?

Re: Ask HN: What Makes AI a Bubble?

#6

Post by avaer »

It is widely agreed users are not paying enough to cover the costs of inference. This is what "subscription" plans are. So, many users are losing the companies money.

This is not discussed publicly and is covered up for by raises, because there is growth and the hope that at some point the economics could work out. Which remains to be seen.

It's a variant on a Ponzi scheme. Investor hope is that at some point someone invents a way to stop losing money.

If at any point investors start to lose faith that this is going to be the case, the bubble pops.

Re: Ask HN: What Makes AI a Bubble?

#9

Post by somewhereoutth »

garrisonj wrote: post #8

It’s important to keep in mind that railroads, airplanes, and the internet also caused bubbles. Just because of an invention is useful and world changing doesn’t mean it won’t cause a bubble.

Conversely, just because an invention causes a bubble doesn't mean it is useful and world changing.

Re: Ask HN: What Makes AI a Bubble?

#10

Post by Rury »

atleastoptimal wrote: post #3
akerl_ wrote: post #2

> Their valuation is backed by actual commerce. Is it?

I think their annualized revenue is 25 billion with 3.4x yearly growth, with 1 billion weekly active users

Now do costs.

You're also ignoring the fact that these companies have been shifting things around to make their books look better than they actually are. Here's a good example explaining how META has been keeping debt and lease obligations off its books to fuel growth (and who's at risk if META doesn't pay up):

https://www.reddit.com/r/economy/comments/1soent7/if_the_ai_...

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