Is OpenAI About to Burst the AI Bubble? Insights on the Future of AI

We are close to the end of AI, and it will hurt everyone.

OpenAI is the poster child of the AI world. Multiple 60-year-olds at my gym have told me I should use ChatGPT to write articles. I cannot think of another technology company that has created such universal hype and fear as OpenAI. Indeed, it's arguable that our current cultural, economic, and financial obsession with AI, a technology that has existed for decades, is thanks to OpenAI. In fact, OpenAI's meteoric rise has pushed big tech to invest hundreds of billions of dollars into AI in an attempt to catch up or ride on their coattails. So, the fact that a recent investigation found that OpenAI could be bankrupt by the end of the year is utterly terrifying, as it will hurt all of us.

Truth be told, there have been signs that AI isn't the profit tsunami investors have touted it to be for a while. As I covered in a previous article, studies have shown that AI is too expensive to replace the vast majority of jobs. Only the most mind-numbing, constrained, and simple tasks could be replaced by AI, and even then, it would primarily augment a job and only partially replace it. As such, the study found that only 23% of workers' wages could be replaced by AI for less expenditure. Moreover, they found that even if the cost of AI declined by 20% each year (which it definitely isn't), it would still be decades before it became cost-effective for businesses to automate themselves with AI.

Even this study's results have been challenged, as even when AI replaces human workers, it doesn't increase productivity. Why? Well, AI needs a vast amount of human oversight to catch, correct, and mitigate the errors it creates. I have written about this extensively, so I won't labor the point here, but in short, AI is too expensive and needs to be more efficient to generate the impact or profit many claims it will.

As such, the writing was on the wall for OpenAI. If this were true for the wider AI industry, why wouldn't it be for OpenAI?

This brings me to The Information's investigation into OpenAI. They used numbers garnered from unreleased internal financial statements and intel from various industry figures to project OpenAI's fiscal future and found something worrying. Despite the company racking in mountains worth of revenue, the cost of building, developing, and running its AI models is so vast that it operates firmly in the red. The company has spent over $7 billion on AI training and 1.5 billion on staffing, and running its main product, ChatGPT, costs over $700,000 daily! As such, by the end of the year, they are set to make an operational loss of ￡5 billion and could actually face bankruptcy.

Now, OpenAI might not actually go bankrupt. They could secure another huge cash injection to keep themselves afloat. Or, their major investor, Microsoft, could buy them out. However, such a move makes little sense for Microsoft or any investor, as buying or funding such an unprofitable business would wreak havoc on their books and stock price. After all, there is no sign that OpenAI will be able to reduce or slow the exponential growth of its operational costs, so no matter if it secures more revenue, it will likely remain vastly unprofitable for years to come.

Okay, so what will the knock-on effect be if OpenAI goes bankrupt or has to be bailed out?

Well, it's the figurehead of the AI world. If it trips and falls, market faith in other AI projects will diminish rapidly. We saw this with cryptocurrency and NFTs in the past few years. As such, any company betting its future on AI might suffer dramatically.

This is how OpenAI's fall will hurt you and me.

You see, Big Tech is balls deep into AI. 微软 , Alphabet Inc. , Meta , and 亚马逊 spent over $189 billion on AI in 2024 alone. To give some context, this represents 21% of the total capital expenditure of the entire S&P 500 (the 500 biggest public companies in the US).

Every aspect of our lives is connected to the S&P 500. Pensions, the economy, the job market, the housing market, political tensions, and even wars are intrinsically linked to this market index. The fact that the S&P is proportionally investing a vast amount into a technology that even the industry leader can't make even slightly profitable suggests it's about to take a dip, as these companies have to shoulder their rotten bet and make life for us harder. This is far from a rock-solid prediction and more of a warning that this could happen. Either way, the fact that this is even a possibility shows how putrid Big Tech and the stock market have become.

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