Apple Will 'Watch Everything Burn' When the AI Bubble Bursts

He's not wrong about the numbers, and you may be seeing what you want to see a little, here.

Fable scoring OK on some benchmarks does not the mean the investment has financially paid off, because that's not how ROI works.

You're right that no bubble has deflated, but I think we can all see that a) there seems to be a bubble - I'm old enough to remember the dot-com era bubble, and this definitely feels like that, b) the only company clearly making a profit on AI right now is NVIDIA, and c) the net economic value of the sector as a whole (i.e. money out > money in), is still unproven

It's not even obvious to me as somebody who is up on comp-sci, that this isn't all hype, that the progress is/will be steady, and that reaching brain equivalent levels and beyond using these architectures will be economically viable.

I can create a perfectly good human brain in 9 months, train it in ~20 years, and have it pay off economically in a more proven way than [waves hands] all of this.

For some reason we've decided paying a hyperscaler the equivalent of a year's salary to do a job in a a day that a similarly paid and skilled human could do in a month is value for money.

You could probably give everyone in the US free healthcare for life and a free ride through college for less money than has been pumped into AI in the last 5 years, and have a more proven economic model.

Sure, time value is a thing, but given the error rates, the energy issues... this direction is not exactly a slam dunk as a net benefit, and I think that's all he's called out in any of the writing I've seen of his.

I also happen to agree with his take on Oracle, as it happens - they're only going to survive if it turns out they're a part of critical national infrastructure deep in the bowels of the US government. They look totally over-leveraged otherwise.

I think the manufacturing analogy is apt. If you consider both the need for minimal COGS and the large R&D expense, it’s kind of like… biomanufacturing. You spend a lot on R&D to develop your bug, which at the end of the day is just a very complicated sequence (DNA vs model parameters), and then you expend a ton of capex (or rent someone else’s capital equipment) to produce a relatively commoditized product (a drug, a protein, food…) at as large scale and low cost as you can.

But that also makes the case for government subsidization + bailout, if you accept it as a capability critical to national security, but one that may not be profitable to run within the US on its own merits.

Apparently RAM and SSD costs have risen so much recently that the bill of materials on the next iPhone could exceed the entire cost of the current one just on RAM/SSD alone [1]

[1] https://images.macrumors.com/t/PtKleXF2po_g3qSuA6VMOE90WEM=/...

> For years he was all-in on "AI is useless, it has no business value at all" claims, and then when that was decisively disproven by Claude Code...

No such disproval has happened. Claude Code does not provide business value, it provides the illusion of value. Just like everything else LLMs do.

Ctrl+F: "national security".

Didn't see national security mentioned a single time in all the current comments or in the article. Speculations about profit are great and there are many companies that will largely be irrelevant across all the major metrics which will not be in a good position, but there are always these people lost on the profit picture of anything.

Does anyone realistically believe that all of these smart people are rushing into AI to maximize profit? No, they're rushing into it, because it's important and awesome. The potential value, not simply measured in dollars, is enormous.

Despite China aggressively training on western outputs, their cloud services can't be trusted and their open weight models are too large for most people to run. Running any of these open weight models through proxies or 3rd party services isn't really expected to be more secure or more private than any of the big companies. If you aren't running it locally then it's irrelevant and most people cannot do that for any sufficiently big model at a usable performance.

Ctrl+F: "web search"

Almost nobody talking about the giant shift in web search. Web search also remains a hugely profitable business and AI is becoming the new web search. It is the default now for many people and that will likely continue to increase.

Is anyone going to argue that web search is unprofitable? No. Nobody. AI will get better and more efficient as needed. You'll have your efficient to run models and your expensive models, branched as needed. This is the biggest shake up we've seen in search in decades, but even with that, Google remains dominant.

Bing made AI search their default and it actually hurt them in my opinion, because it was very bad and mostly wrong. Google added AI search, but it's been a lot more accurate and grounded. Keep in mind that Google search remains the default for a lot of devices. You don't even have to install ChatGPT or Claude on your phone, because Google is already there and people are getting used to Google AI results.

When I talk to random people, do you think they tell me they're using ChatGPT or Claude? Basically never. They talk about Google Gemini or Google AI. Gamers have an ok chance of saying they use ChatGPT. Programmers have a good chance of saying they're using Claude or ChatGPT. Anyone else it's almost universally Google Gemini or just Google AI. You do a basic Google search and you're already within the potential flow of an AI conversation.

Making money is important so that you can increase the amount of reinvestment into the product, not strictly to maximize profit. From the situation a lot of these AI companies are in, acceleration should still be more important than profit and whether they can focus on acceleration may depend on their investment picture.

OpenAI and Anthropic are going to need a long term reinvestment strategy that accounts for Google having the potential to outpace them and become good enough that nobody bothers launching or loading a separate app anymore. Keeping smart people using your product is an important aspect of it all since you want your product to become smarter too.

Maybe Apple will simply pay for these services the way it does for Google search, but if they want to maintain their privacy philosophy they will either be dependent on models from these companies or have to roll their own.

Either way, AI is sufficiently complex and capable that there will remain many ways for companies to specialize and provide profitable value to people for decades to come. It adheres to physics. It takes energy. It takes time. User experience is important, but the more that private user and company data gets used the more that trust will continue to be relevant too.

I think some of these analysts are too caught up in a few numbers here and there to understand what is happening. Are OpenAI, Anthropic and Google simply going to explode and cry "oh no, we were dumb"? That feels like the picture this guy is painting and it feels a little naive. That also ignores the fact that they are basically developing the smartest AI that can theoretically help them navigate their business into the future.