Gen AI Apps - Is A 500x Revenue Multiple Fair?
For all the Gen AI hype, there is little Gen AI revenue.
Nvidia’s AI chip sales are largely driven by LLM and multi-modal model builds in support of Gen AI applications and services. Gen AI applications and services have little to show in relation to the associated hype. For example, let’s assume that OpenAI is operating at a $3 billion revenue run rate. Let’s assume another $3 billion of revenue for all other Gen AI applications and services. That’s $6 billion of Gen AI revenue at the application layer - where end-users play. End users will determine the size of the Gen AI market (obviously) and will determine whether Nvidia and others have a long-term hit in Gen AI infrastructure.
Between Nvidia, Microsoft, OpenAI, Google and the cohort of other Gen AI companies, we calculate an aggregate valuation of approximately $3 trillion related to the Gen AI hype.
Some quick math: $3 trillion divided by $6 billion - that’s a 500x multiple on Gen AI application layer revenue - i.e. the “demand” layer. That is rich no matter how you slice it.
How much longer will bogus “AI” valuations persist?
None of these bubbles would be possible if Trump and Biden hadn’t pumped trillions of Dollars into people’s hands via the Covid stimulus checks and various other Covid-related benefits for people and companies. Fiscal deficit spending is only causing price inflation of goods, services and asset prices. The “AI” bubble is one such example of excess liquidity in the system.