Technology

OpenAI needs to raise capital at a valuation far higher than any other startup in history

The only difference is the concentration of wealth. Whether you spread the eggs across a dozen baskets or put them all in one doesn't matter if the farm producing the eggs has a salmonella outbreak. It's the same underlying problem whether it impacts a handful of companies or hundreds, investors are investing way too much in the same thing.

That said, the investment is still somewhat spread out among OpenAI, Microsoft, Apple, Google, Meta, and Amazon (leaving Nvidia out intentionally here since their risk is limited). Each of those is investing a ton into AI, so if there's a problem in management instead of the underlying tech, then there will be winners and losers among that bunch, but if there's a problem with the underlying tech, all of them are going to get hit.

It’s hard for me to imagine investors that don’t understand the technology now but getting burned by it being enthusiastic about investing in a new technology they don’t understand that promises the same things

But that's just it, they'll market it differently. Apple has the "Apple intelligence" brand they're going for, and they're trying to distance themselves a bit from the rest of the pack. Amazon is largely betting on AI processing hardware, so they're a bit less exposed if consumers shift from one incarnation to another, provided they still use similar hardware for whatever that replacement is. One of those players will capitalize on the hysteria going the other direction and rebrand successfully to attract investors.

So if LLMs end up being a liability, we'll see a bunch of rebranding of similar tech (say, "real intelligence" or "intelligent digital assistant" or whatever). Some companies will transition successfully, others won't, but tech companies will find a way to keep the funding flowing.

losing a decade plus of progress is significant

But it's not real progress, it's inflated progress. If you look at average, inflation-adjust returns (CAGR, not simple average) over the past 30 years, from the start of the dotcom (1993 -> 2023), average returns are 7.5%/year. 20 years (1993 -> 2013) is 6.7%.

If you look at innovations, smartphones started coming out right after the dotcom bust, "Web 2.0" was coined in 1999 (peak of the dotcom bubble) and became a thing in the early 2000s, etc. There was a lot of innovation in tech, which seemed largely unaffected by the dotcom bubble.

So I'm really not worried about it. We had a massive tech correction in 2000, yet the decade following had some of the biggest changes in tech, a lot of it coming from the companies that survived the dotcom bubble. Likewise after the 2008 crash, the financial sector had a massive run. I don't see any reason for the AI bubble to be any different.