OpenAI Might Be About To Pop The AI Bubble
OpenAI Might Be About To Pop The AI Bubble
Reality will hit hard.
There is a tension in the air. Anyone involved in technology or finance can sense the immense juxtaposition of the AI industry. This technology is meant to be drastically disruptive and wildly profitable, yet it is struggling to find applications and is draining the pockets of even the largest tech giants. Even those who have poured billions into the AI industry are starting to notice this issue, with many investment bankers questioning whether they will ever see a return on their money. In short, there is an AI bubble, and it is fit to burst. But OpenAI, arguably the world’s largest and most influential AI company, might be about to thrust a pin into this bubble.
How? Well, anonymous sources told The Information that OpenAI is considering a $2,000 subscription to access its advanced AI models. It is unclear whether this is on a monthly or yearly basis, but either way, it is a drastic jump up from its current subscription of roughly $20 per month. It’s also unclear if this increase would apply to its current roster of AI tools or its next-generation tools. But this doesn’t matter either, as their current tools still can’t deliver the impact promised or expected. ChatGPT still gets things massively wrong; whether it’s writing hilariously false facts or writing code that is so buggy, it’s more efficient to just write it yourself. DALL-E is limited and seriously struggles to produce images that don’t look AI-generated. And don’t get me started on the disaster that is Sora. In short, OpenAI needs its next-generation AI tools to have the reach and impact it needs to not only follow through on its hype but also generate enough revenue to pay for its R&D.
So, why would OpenAI need to raise their prices this much? Well, there are two glaringly obvious reasons.
Firstly, as I wrote in a previous article (read here), AI is hitting a point of diminishing returns. This is a massive problem for the entire AI industry. Basically, AI uses training data to “learn”. If you want the AI to get more accurate, feed it more data and let it process it. That is one of the main ways AIs have got so much better recently, as they have been able to process far more data. However, this approach has diminishing returns, as the amount of training data has to increase exponentially to keep the same rate of improvement. Now, it is challenging and expensive for AI companies to gather and prepare this data, and as such, these expenses will rise exponentially if the rate of improvement is to be sustained. Not only that, but AI training (the AI processing said data) gets exponentially more expensive as the training dataset grows, as a training dataset twice as big will take roughly four times the energy to be used to train the AI. On top of all of that, these larger models require drastically larger GPU-based supercomputer clusters, which cost hundreds of billions of dollars to build.
As such, even if OpenAI maintains a flat rate of improvement, its operational costs are set to spiral out of control. But, OpenAI and many AI companies are expected to (and are valued on the basis that they will) take huge leaps forward in the coming years. So, no wonder they need to up their prices.
But this brings me to the second reason OpenAI might want to increase prices. Even without these rising costs, they are haemorrhaging money at an insane rate.
Again, an investigation by The Information found that OpenAI 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, they predicted that OpenAI will post an operational loss of $5 billion by the end of the year, and could face bankruptcy. So even in their current situation, with their AI tools that are just good enough to use occasionally, they don’t have enough revenue to even get close to breaking even. As such, to keep the wolves from the door, they need to dramatically increase their revenue.
I am convinced that this price hike, if OpenAI goes through with it, will be the abrupt smack of reality that will pop the AI bubble. Those who dumped money into AI did so as they thought the industry would be wildly profitable after it disrupted almost every sector of our economy. But this price hike shows that this idea is entirely false. It highlights all the major issues with the AI industry, from its complete lack of profitability to its dramatically slowing development and costs that are only set to skyrocket. Even if AI could cause the disruption they expected (which it absolutely can’t), it wouldn’t be profitable. So, guess what these investors will do? Sell and sell fast. That’s how OpenAI could be about to burst the AI Bubble as it desperately tries to avoid bankruptcy.
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Sources: TechSpot, Will Lockett, Will Lockett