AI investment has helped keep markets and economic growth ticking along, but the IMF fears the boom could quickly turn to bust if the promised profits fail to materialize. With tech giants borrowing billions and investors piling into the same handful of companies, a selloff could leave more than just Silicon Valley nursing a hangover.
API costs start to approach the operating costs of these systems. The ultra premium subscription tiers still lose money.
Tech has high market value because there’s the potential for growth, and the cost to grow is minimal after the initial startup costs. Adding a subscriber to a newspaper costs, say $0.20 for each subscriber; adding a Facebook user has a cost approaching zero as the user count grows. The problem with GenAI is that the inference cost grows linearly with usage, and the constant creation of new models means the training costs are also not recouped.
The debt the datacenter builders are taking on are being traded as junk with high interest rates already, and they’re going higher. They’ll never generate the income that the rates demand much less recoup the cost of building.
probably even slightly more than linear at this point as they use up so much electricity and other resources that it becomes more and more expensive to serve more users. User 1 is easy, that’s just the existing data center. User 1 million, well, you need a new datacenter and drive up hardware prices, but it’s fine. User 10 million, you need to build/rent gas power plants, figure out where to get water from, RAM and everything costs 5 times as much as it used to, bribe local politicians to build despite backlash etc.