“I know it’s tempting to write the bubble story,” Mr Altman told me as he sat flanked by his top lieutenants.
In Silicon Valley, the debate over whether AI companies are overvalued has taken on a new urgency.
Sceptics are privately – and some now publicly – asking whether the rapid rise in the value of AI tech companies may be, at least in part, the result of what they call “financial engineering”.
“When [the bubble] breaks, it’s going to be really bad, and not just for people in AI,” he said.
Tangled web of deals OpenAI, which brought AI into the consumer mainstream with ChatGPT in 2022, is at the centre of the tangled web of deals drawing scrutiny.
Concerns about the AI bubble popping in Silicon Valley are growing. “It’s going to be really bad.”.
Eleven hours earlier.
Lily Jamali, San Francisco-based technology correspondent.
Sam Altman, the CEO of OpenAI, did something that is uncommon for American tech leaders these days at OpenAI’s DevDay this week: he actually responded to questions from reporters.
Mr. Altman, sitting with his top lieutenants at his sides, admitted to me that he was tempted to write the bubble story. Actually, there are a lot of AI-related topics that I believe are currently very exciting. “.”.
The argument over the overvaluation of AI companies has gained new momentum in Silicon Valley.
Critics are privately, and now publicly, questioning whether “financial engineering” is to blame for the sharp increase in the value of AI tech companies.
Stated differently, there are concerns that these businesses are overpriced.
Mr. Altman stated that he anticipated that some investors would make poor decisions and that foolish start-ups would profit handsomely.
He informed me, however, that “something real happening here” with OpenAI.
Not everybody is persuaded.
Jamie Dimon, the head of JP Morgan, told the BBC that “the level of uncertainty should be higher in most people’s minds” and that the Bank of England and the International Monetary Fund have warned of an AI bubble in recent days.
And worries are rising right here, in what is frequently referred to as the global center of technology.
This week, early AI entrepreneur Jerry Kaplan told a crowded room at a panel discussion at the Computer History Museum in Silicon Valley that he has experienced four bubbles.
Compared to the .-com boom, the amount of money on the table now worries him the most. There’s a lot more at stake.
According to him, “it’s going to be really bad, and not just for people in AI,” when the bubble bursts.
“The remainder of the economy will be negatively impacted. “,”.
But according to Prof. Anat Admati of the Stanford Graduate School of Business, which has produced a number of tech entrepreneurs, modeling when we’re in the bubble has been tried numerous times, but it can be a pointless endeavor.
Prof. Admati informed me, “It is very hard to time a bubble,”. And until the bubble has burst, you cannot say with certainty that you were in one. “,”.
However, many people find the data alarming.
Eighty percent of the impressive gains in the U.S. stock market this year have come from AI-related businesses, and according to Gartner, until 2025, global spending on AI is expected to reach a staggering $1 trillion (£1 trillion).
tangled network of agreements.
At the heart of the complex web of deals under investigation is OpenAI, which introduced AI to the general public in 2022 with ChatGPT.
It signed a $100 billion agreement with chipmaker Nvidia, the world’s most valuable publicly traded company, for instance, last month.
With the expectation that OpenAI will construct data centers fueled by Nvidia’s cutting-edge chips, it builds on an existing investment Nvidia had in Mr. Altman’s business.
Then on Monday, OpenAI revealed that it would buy billions of dollars’ worth of AI development equipment from AMD, a rival to Nvidia, potentially becoming one of AMD’s biggest shareholders.
Recall that this is a privately held company, even though it was recently valued at half a trillion dollars.
Next is the heavily invested tech giant Microsoft, and cloud computing giant Oracle has a $300 billion deal with OpenAI.
With the support of Oracle and the Japanese conglomerate SoftBank, OpenAI’s Stargate project in Abilene, Texas, which was unveiled at the White House during President Donald Trump’s first week in office, continues to expand every few months.
Regarding Nvidia, it owns a share in CoreWeave, an AI startup that helps OpenAI meet some of its enormous infrastructure requirements.
And as these increasingly intricate financing arrangements become more prevalent, Silicon Valley experts say they might be distorting perceptions of the demand for AI.
When a business invests in or lends money to its own clients so they can keep making purchases, some people aren’t holding back either, referring to the transactions as “circular financing” or even “vendor financing.”.
During Monday, Mr. Altman informed me that “yes, the investment loans are unprecedented.”.
“However, it’s also unprecedented for companies to be growing revenue this fast,” he continued. “,”.
Although its revenue is increasing rapidly, OpenAI has never made a profit.
And the fact that the people I’ve spoken to keep bringing up Nortel, the Canadian telecom equipment manufacturer that took out a lot of loans to help finance deals for their clients (and thereby artificially boost demand for their wares) is hardly encouraging.
On CNBC on Monday, Jensen Huang of Nvidia defended his agreement with OpenAI, stating that the company is not obligated to purchase his company’s technology with the funds he contributes.
“They can use it to do anything they like,” Huang stated.
“There are no restrictions. Our main objective is to simply assist them in growing, which will advance the ecosystem. “..”.
Telltale signs.
The AI industry, and consequently the economy as a whole, may be in danger, according to Mr. Kaplan, who sees a few warning indications.
He claims that during frothy times, businesses reveal big plans and projects for which they lack the necessary funding.
Retail investors, meanwhile, are vying to participate in the startup scene.
The spike in AMD stock this week may be a sign that investors are vying for a share of the ChatGPT fortune. As this is happening, actual physical infrastructure is being constructed to meet the seemingly unquenchable demand for further AI advancement.
“With the builders and investors long gone, we’re creating a new man-made ecological disaster: massive data centers in isolated locations like deserts that will rust away and leak harmful substances into the environment, with no one left to hold accountable,” Mr. Kaplan stated.
Even though we are in a bubble, Silicon Valley hopes that the money invested now won’t be wasted.
“What gives me comfort is that the internet was created from the leftovers of yesterday’s excessive investment in telecom infrastructure,” said Jeff Boudier, a product developer at Hugging Face, a hub for the AI community.
He stated, “There may be financial risks associated with overinvesting in infrastructure for AI workloads.”.
But it will make possible a ton of fantastic new experiences and products, including ones we aren’t currently considering. “,”.
Many people think AI has the power to change society.
The question is whether there is a shortage of funding to support the goals of the leading businesses in the industry.
“Who else is able to invest $100 billion in another company at this time?”
.
