When Will the Gen AI Bubble Burst?
The Gen AI bubble will burst when investors realize that end-user demand is not at a level that supports Gen AI valuations. For companies such as OpenAI (valued at approximately $90 billion) and Nvidia (valued at $3 Trillion) to be so richly valued, there better be a multi-Trillion Dollar Gen AI revenue opportunity in the not-to-distant future. There is not. Sorry to burst the bubble.
Where is the cloud leader in Gen AI? AWS - the cloud leader - generated 2023 Revenue of $91 billion. Let us assume that AWS will generate revenue of $100 billion in 2024, only a portion of which is AI-related, and only a portion of that subset will be Gen AI-related. Perhaps AWS will generate $1 billion of Gen AI revenue in 2024.
Where is the Gen AI leader in terms of Revenue run rate? OpenAI was operating at a $2 billion Revenue run rate as of December, which was enough to execute a capital raise at an $86 billion valuation. Even if OpenAI were to double December’s revenue run rate in 2024, that would only be $5 billion of Gen AI revenue between AWS and OpenAI.
Google and Microsoft move the Gen AI needle. Let us allocate another $1 billion of Gen AI-related Revenue each for Azure and Google - that gets us to $7 billion (I am focusing on the software layer because that is where user engagement will occur - not at the hardware layer).
The rest of the Gen AI bunch. Let us add another $3 billion to the pot to account for other companies that are building Gen AI models and applications. That is only $10 billion of Gen AI revenue - a paltry sum compared to the level of investment.
Gen AI revenue will not justify today’s Gen AI bubble valuations in the near, intermediate, nor long-term. Does the fact that companies are spending tens of billions of U.S. Dollars to invest in Gen AI guarantee a Trillion-Dollar Gen AI Revenue opportunity? Certainly not.
Eventually somebody will ask why AI can't moderate social media if it's so smart. After all, none of these companies would be viable if held to the same standards as everybody else, so how long will the public put up with it. In the EU they have had enough, but America will probably have to wait until venture capitalists run out of money.