A Non-Obvious Answer to Why the AI Bubble Will Burst(brodzinski.com)
30 pointsby flail3 months ago8 comments
  • iLoveOncall3 months ago
    > Do you know of a restaurant that’s been losing money for an entire first decade of its operations, and yet remained open? Or any small business in such a situation?

    I stopped reading here, which is at the very start of the article, because unlike restaurants there are plenty of examples of companies that remained unprofitable for a decade and then turned a profit.

    It also ignores the fact that up until 2022ish, OpenAI wasn't even trying to be a for profit company.

    I fully agree that it's a bubble and I think it already has started popping, but this article is low quality and honestly full of basic errors.

    • flail2 months ago
      > I stopped reading here, which is at the very start of the article (...) > (...) this article is low quality and honestly full of basic errors.

      Just curious: How do you know it's full of errors, given that you stopped reading at the very start?

  • countWSS3 months ago
    a far more obvious answer is that any AI that relies on matrix multiplication or equivalently near-cubic complexity cannot scale exponentially with existing hardware and investing in datacenters requires actual operating revenue(that doesn't grow exponentially) instead of loans and venture capital.
    • flail2 months ago
      One more interesting aspect: the infrastructure doesn't age that well. We basically need to renew all that infrastructure every, like, 2-4 years or so? (And I think I'm being optimistic here.)
  • nialse3 months ago
    Interesting. A more dystopian take is that human interaction will be limited to a privileged class. The unprivileged will ”have to do” with machine interaction. It’s not really something new. Automation lowers cost. But it the perpetual growth economy there also needs to be more profit, which leaves charging more and/or lowering cost even more as the only viable options. See where this is going? As with food, the unprivileged will have to do with energy rich, low quality, mass produced interaction. Music is the next/current frontier. The privileged will seek out in person events, while the unprivileged will ”have to do” with energy rich, low quality, mass produced machine made culture.
    • 17186274402 months ago
      The question is whether the commoners put up with that, which is kind of like "the bubble pops".
      • nialse2 months ago
        Sounds more like an upcoming revolution than a bubble popping then. Makes me kind of happy! My fear is that AI is and will be used to keep people content and passive.
        • 17186274402 months ago
          Costumers refusing to buy something or boycotting a specific company seems to be more like a bubble popping to me.
  • blharr3 months ago
    a hugely rambling article, and I don't see how it's final thesis relates to its argument at all

    > Because the AI business model relies on reducing social connections between human beings, it is not sustainable. Thus, there is the AI bubble, and it will burst.

    "Because it relies on reducing social connections, i ts, not sustainable" isn't a logical argument. There's plenty of cases where reducing social connections have been sustainable enough to generate immense profits. If anything, social connections are completely antithetical to generating profit. Actual 'social' professions are often the least paid and most overworked jobs with little ability to scale.

    • netsharc3 months ago
      And author says social media companies was a positive thing. Sheeeesh.

      One day I looked around me and was amazed at how many things around me got there because I clicked on buttons in online shops (vs leaving the house, going to the store, purchasing it and taking it home). Buying plane tickets? Clicks. Go to the airport, scan boarding pass (also obtained digitally), all the way to the gate where on domestic flights no one even checks for ID, no "social connection" needed.

      • 17186274402 months ago
        > And author says social media companies was a positive thing. Sheeeesh.

        The author never claimed it was positive as in "morally good". He said it as in "you can make good money with that".

    • 17186274402 months ago
      > I don't see how it's final thesis relates to its argument at all

      > Because it relies on reducing social connections, i ts , not sustainable" isn't a logical argument.

      It seems like the author uses a different understanding of the term "social connections between human beings", which might be better described with "physical or virtual effect on actually existing commoners". "Social" as in "society", not as in "relationship"; "connection" as in "relation between things" aka. "is a", "has a", not as "social bonding" or "transmission channel".

      I think a financial transaction or a contract counts as a social connection here.

    • Rastonbury3 months ago
      that 95% of AI projects by corporate is so over repeated, whenever I see it I get turned off by the lack of originality of thought

      Also author cites Google and FB time to profit, they are outliers and things are different now with companies staying private longer. Uber took 15 years to get cash flow positive

      • flail2 months ago
        I don't think FB was an outlier. I can't be sure, but I don't think there were many (any?) companies that took more than 10 years to profitability pre-2015.

        I think Twitter took 11 years, and it was 2017.

        Uber is actually a good counterexample for more reasons than just how long it took to reach profitability. It also raised a lot of money $13B+ (compared to Facebook's ~$2B and Twitter's ~$3.5B), and ~$8B from IPO (that's another interesting fact; IPO when bleeding money).

        However, it would rather make Uber an outlier, not vice versa. I guess Tesla and SpaceX fall into the "Uber" bucket, too (SpaceX would actually be profitable pre-2015, right?). How many others can you list?

        So yes, we have extending timelines, but pouring money into a leaky bucket for 10 years is still predominantly a losing bet. For each that eventually made it you would have Foursquare, We Work, Better Place, Jawbone, Theranos (!), Fisker Automotive, etc.

        And for each of those, you would have dozens that are even more forgotten because investors pulled the plug after just a few years (anyone remember fab.com perchance?). I would put Groupons of this world in the same bucket.

        But even if we treated Uber and Tesla as the norm, OpenAI has already beaten them all in terms of how much funding it raised (and Anthropic is on its way there, too). Both with no signs of profitability round the corner and an absurd burn rate that can't be carried by any single customer group (and I already think about their geography as global).

        That's why corporate results are so important, as they can afford to pay a premium. ChatGPT users will not.

        So even among the wildest outliers, AI companies are extreme outliers.

  • egberts13 months ago
    Another nonobvious answer is AI companies have overextended themselves with circular revenues between their own two entities thereby resulting in fake revenues, expiring receivables, and brilliant marketing.

    SEC to follow up.

    https://substack.com/inbox/post/179453867

  • more_corn3 months ago
    Reading that article was a waste of precious minutes of my life.

    Let me save you a click “the AI business model relies on reducing social connections between human beings, it is not sustainable”

    Two statements, both untrue.

  • nr3783 months ago
    The "bubble" will burst if it turns out that the demand for OpenAI/Anthropic's services is primarily driven by investment-dollars (i.e. VC money) rather than revenue-dollars.

    If OpenAI/Anthropic's customers are themselves generating real revenue with reasonable margins, then it's not a bubble at all.

    • MikeNotThePope3 months ago
      Reminds me of the obscene valuations of larger tech companies like Microsoft, Cisco, and Amazon during the dotcom bubble. The companies were overvalued by any reasonable measure.

      Cisco Systems

      - Peak: $555-579B market cap, March 2000 ($80/share)

      - Low: $8.12/share, late 2002 (down ~90%)

      - Recovery: Never fully recovered; still below peak as of Nov 2025 ($308B market cap)

      Microsoft

      - Peak: $614B market cap, December 1999

      - Low: Down ~60% to below $250B by December 2000

      - Recovery: October 2016 (17 years to recover)

      Amazon

      - Peak: $113/share, December 1999

      - Low: $5.51/share, late 2001 (down ~95%)

      - Recovery: Late 2009 (10 years), though briefly recovered in 2007 before 2008 crash set it back to full recovery in 2010

      It will be interesting to see which companies survive and which implode.

      • 17186274402 months ago
        Are the recovery times inflation adjusted?
        • MikeNotThePope2 months ago
          No, these are just the raw numbers. Adjusting for inflation, I guess recovery times would be even longer.
  • queensnake3 months ago
    He puts the bubble pop down to people needing human connection, 'feeling cared for', but his example shows the AI customer support simply getting nowhere.