Why Wall Street Is Ignoring Big Tech's Debt

But the question is how much are people willing to pay for AI.

I use AI every day at work, but I only pay $20. That's the most I will ever want to pay. And, so far, it gives me everything I need.

If OpenAI or Anthropic suddenly said "Sorry, the game is up. You'll have to pay $100/month now", I would 100% look into cheaper Chinese solutions.

I suspect the AI subscription (or API) economy is whale economy. You have a small, small percentage of users that are happy to pay whatever it takes - while the vast majority will either use the free tier, and then the next group will pay for the cheapest or next cheapest subscription.

EDIT: And I'll echo what another user wrote here. The VAST majority of office users around the world don't work for tech companies flush in cash. Even adding something like $20 - $100 subscriptions to every user is a serious enough financial obligation that it needs to go through budget planning / boards. Even more so for all the government workers around the world.

The real question is not whether there will be a market for AI, it is obvious that there will be one (as it was obvious the Internet was a gigantic thing in the dotcom boom). It is rather whether the value will be in the models (and if so in which?) or the infrastructure or somewhere else.

Interesting thoughts from Dwarkesh Patel on the future of models [1]. In summary, no moat if a client can switch to a competitor from a dropdown when all models are similar-ish (so models are commodities), but to really compete with humans, AI needs to start "learning on the job", i.e. accumulating experience like an employee (as opposed to the training / inference approach where the model isn't learning after it is released). If your model does that, then you have vendor lock-in as you can't replace an experienced model with a competitor. Then the value is in the model.

As in the 90s, this could go in all sort of different directions, hard to make predictions. And remember the 90s: the value was in the browser (you had to purchase it, eg Netscape), then the browser came for free with the OS (no value in the browser), then the browser was the most important thing in the world as it was control over the default search engine, everyone thought portals was the most important thing to control, so ISPs had their own applications accessing the internet from their own portal, etc - none of those people were stupid.

[1] https://www.youtube.com/watch?v=iewm45atodE

The reason uber didn't loose that much business is because it replaced the established businesses and left most consumers with little alternative.

That's not the case with AI - unless the frontier labs achieve AGI or some sort of super intelligence that lets them create infinite economic value (at which point, any further discussion is pointless for obvious reasons), the average worker can do most of their tasks with 5% of the api costs using an open source model from China and achieve the same results.

$80 per month in a 5,000 people Enterprise is 400k per month which translates to ~5m per year. That is easily in the 8-16% of their total IT budget. I don’t know you, but companies don’t like to increase recurring cost. Is AI good? Yes. Is it clear how it generates enough ROI to justify a material IT cost increase? No. This is the problem now, not how much white collar workers use AI, but what is the productivity narrative of it. Because AI is so generic, there is no clear specialized use case, like when Salesforce invented the CRM for example.

If you need fewer workers due to the increased productivity, then the number of white collar workers (the TAM) won't be as large as anticipated.

That’s not the argument though. The argument is that conversion rates as per OpenAI are about 5% and to serve the other 95% you need to build significant infrastructure that costs hundreds of billions annually. So for every white collar worker that you know and uses it and pays for it there are 20 free loaders. And mind you, 5% conversion rate is extremely high already as a number per se. It won't magically reach 20% in a couple of years. Chances are it will fall particularly for the enterprise segment due to the advent of the Chinese models.

I agree that it's working good enough and that it's here to stay: mostly everybody around me uses AI too but...

> Did Uber die when a trip across town went from $3 to $13? No. It's giving more rides than ever, 10x more than when it was $3.

The competition from open-weights models is already putting pressure on how much this can be billed. That's today, with stuff like OpenAI announcing 80% cuts on terra and luna. Tomorrow, in addition to the pressure from open-weights models, there's going to be pressure from chinese hardware: Tencent, Alibaba, etc. are all already working on their own AI chips.

What good would, say, a SOTA open-weights model running on chinese chips (chinese chips located in China or elsewhere btw) do to, say, Meta or Oracle's insane AI investements?

And it doesn't even have to be chinese chips: what good AMD AI chips doing inference by having weights etched on silicon will do to OpenAI and Anthropic?

All the people, especially here on HN, who were explaining six months ago that OpenAI and Anthropic models where so good for coding that coding was solved once and for all can now run better open-weights models than the proprietary ones from six months ago. For a fraction of the price.

If people, instead of paying $20 per month pay $80 per month for their AI subscriptions, what makes you believe that money is going to go to one of these companies participating in this $2 trillion debt?

And really, in which new domain have we seen the first movers being able to keep a lifetime grip on the market without getting their arse handed to them by the competition? Things moves quickly today: I'm not sure OpenAI and Anthropic are the Ford equivalent for AI.

For all I know OpenAI is "La Mancelle":

https://fr.wikipedia.org/wiki/La_Mancelle

And Anthropic is Panhard.

That AI is here to stay is a given. That people may be willing to pay more is likely (even though IMO they won't pay 4x more for something only marginally better). But that the current players are going to stay on top even though the competition closed the gaps to weeks?

I don't buy it.

A bit of napkin math.

How many are the white collar workers? 300 mln? even with $100 subscription each, the monthly revenue for your addressable market rises to $30 bln. If we increase the figure to half of humanity and they are 3 bn, you multiply it upto 10 and $300 bn monthly, $3.5 tn annually.

Now start cutting it down keeping in mind that not everyone is an office worker, does not need $100 plan, has access to cheaper models, could get ai through someone elses subscription or local models. I'm not sure how down it will get, but it can get down a lot and will have to be split among few players. At least for me it does not seem unrealistic that the revenue won't be enough for everyone.

Currently, a $20/month openai subscription gives roughly $400 in codex api credits. That doesn’t count what you can get from the web chatbot.

So it better be that api tokens are seriously overpriced. There is value at $20/month. I am not so sure if it’s $400/month or more.

using how?

After using it a bit I’m convinced it’s not, as a whole, a bubble.

Bubbles exist around it. Data center construction may end up overbuilding, much like the dark fiber thing during dot.com, since better chips and models will shrink power and space requirements over time.

But the core tech is the most powerful new thing I have seen since discovering the Internet, at least. Maybe more.

>> when his bonus depends on his not understanding it

As he explains here: https://youtu.be/NufJ7g63KSY?t=1233

That does not explain the buy recommendations for SpaceX

No. There's a blink at 11:04.

Hah instantly knew it was a Patrick Boyle video. He's a well-known expert in rap music that also does finance on the side.

And capitalism also works with crashes taking unprofitable companies down. And frauds, eventually, gets companies valuation like Enron and FTX to zero. And people go to jail.

Now I'm not saying OpenAI or Anthropic are frauds. What I'm saying is that, eventually, things revert to what is just.

The late 90s SV tech-bros behind pets.com or webvan for example faked it for 18 months to 36 months or so. At some point when the expenses outnumber the revenues, capitalism does its thing.

It's a near guarantee that when things shall heat up and the stock market shall crash and people are going to say that "this time it's worse than 1929", we'll hear the brrrrrrrr sound of the money counterfeiters, very likely synchronizing their counterfeiting operations worldwide (US / EU at least) to print ever more money.