Today OpenAI is a for-profit governed company—worth an astonishing half a trillion dollars. It is at the forefront of the 4th industrial revolution known as artificial intelligence (AI). ChatGPT released consumer facing AI to the world with a bang beginning in 2022. Since then, OpenAI has made a dramatic and rapid land rush on every front. The company has been off to a stellar start with its Stargate project in Abilene, Texas. The colossal tech companies Oracle and SoftBank are lending their deep pockets to the cause as well. As OpenAI’s valuation skyrockets, so too do fears that there might be a bubble brewing in the booming AI industry.
In fact, the Stargate project that is intended to further develop AI capabilities has mushroomed in size and scope every three months. This expansion is further fuelled by a recent landmark $100 billion agreement with chipmaker Nvidia, to supercharge OpenAI’s computational power. OpenAI’s move has sparked exciting speculation that the company will purchase billions of dollars worth of AI development equipment from AMD. If enacted, this move would make OpenAI instantaneously one of AMD’s largest shareholders.
Even OpenAI’s own CEO, Sam Altman, has called out the breakneck speed of investment in the AI space. His main premise is that a lot of investors will screw up. This might eventually result in very dubious startups attracting way too much money, but he’s hesitant to say it’s a bubble.
“I know it’s tempting to write the bubble story,” – Sam Altman
It’s loans tied to investment that Altman highlights as the new hallmark of this unprecedented moment. He remarked on the rapid revenue growth within companies like OpenAI, stating, “it’s unprecedented for companies to be growing revenue this fast.”
While there is optimism from the likes of Altman, there is plenty of skepticism, even among industry insiders. Jerry Kaplan, an early AI entrepreneur with extensive experience through previous market bubbles, has observed warning signs that may indicate trouble ahead for the AI sector. That’s why Kaplan warns that if this bubble bursts, the fallout could be catastrophic, well beyond the AI sector.
“When [the bubble] breaks, it’s going to be really bad, and not just for people in AI,” – Jerry Kaplan
The burgeoning AI sector has accounted for approximately 80% of the remarkable gains observed in the American stock market this year. As per the recent research done by Gartner, worldwide spending on AI is estimated to hit a staggering $1.5 trillion by the end of 2025. This sudden economic leap makes one wonder how sustainable this is and if the market can hold it.
Prominent voices in finance echo these concerns. Jamie Dimon wants us to believe that the uncertainty around today’s investments should make investors more risk averse. He notes that “the level of uncertainty should be higher in most people’s minds.” As Professor Anat Admati points out, it’s very difficult to perfectly time market bubbles. She urges caution in proclaiming a bubble before it has popped.
“It is very hard to time a bubble,” – Prof Anat Admati
“And you can’t say with certainty you were in one until after the bubble has burst,” – Prof Anat Admati
Jeff Boudier provides an on-the-ground look at risky bets behind infrastructure investments for AI workloads. ABA President and CEO Geoff Traveler testifies that financial calamity often results in the wake of overinvestment. He’s highly hopeful for the new products and experiences that AI will create.
“If there is overinvestment into infrastructure for AI workloads, there may be financial risks tied to it,” – Jeff Boudier
“But it’s going to enable lots of great new products and experiences including ones we’re not thinking about today,” – Jeff Boudier
Like its commercial best friend, OpenAI is growing like a weed and attracting unprecedented amount of capital. As this growth continues to play out, insiders are focusing intently on its valuation and deals. For better or worse, founders and investors alike view OpenAI as a pathbreaker in the emerging AI ecosystem. Worries over a bubble have long-tracked its explosive development.