AI Vicious Cycle: Will We Fall into the Same Traps as the Past?

AI Vicious Cycle: Will We Fall into the Same Traps as the Past?

The fervor around artificial intelligence (AI) is creating a concerning financial trend, shaping a potential AI Vicious Cycle. As technology giants eagerly support innovative startups, demanding promises of revenue in return, recent upheavals at OpenAI, backed by Microsoft, illustrate how seemingly virtuous circles can take a turn for the vicious.

The current excitement over AI programs that emulate or surpass human abilities is unmistakable. Following a tumultuous week at OpenAI, where CEO Sam Altman was fired and rehired, the startup is moving forward with a share sale, potentially valuing it at over $80 billion. Despite recent risks and disruptions, the corporate support is propelling the hype to overcome obstacles.

Microsoft’s injection of $10 billion into OpenAI in January initiated this trend. In the 12 months post the deal, OpenAI’s spending on Microsoft’s Azure cloud computing services skyrocketed from less than $1 million to a projected $400 million annually. The surge in interest mirrors the dot-com era but raises concerns about how these investments are structured.

Generative AI, utilizing algorithms to create new text or imagery, has stirred excitement across Silicon Valley, with companies like Microsoft, Apple, and Alphabet outperforming the Nasdaq Composite Index. However, the risks lie in the structure of these investments, reminiscent of the 1990s when stretching global communications networks led to financial pitfalls.

OpenAI’s recent fundraising suggests a valuation exceeding $30 billion, more than double its earlier estimate. This growth is symbiotic, influencing Microsoft’s valuation and contributing to the prospect of upselling subscriptions with AI features.

Similar mutual support is seen in other tech giants. Amazon’s investment in Anthropic and Google’s subsequent commitment highlight a pattern of reciprocal funding. While reminiscent of the past telecom bubble, the current risks seem more manageable due to the relatively small amounts involved for trillion-dollar companies. The AI industry’s high mortality rate may persist, but the overall market growth could still offer benefits.

Source:Reuters Graphics

Amazon’s motivation, for instance, extends beyond financial gains, aiming to strengthen its chipmaking business. By supplying semiconductors to Anthropic for AI-model training, Amazon could challenge Nvidia’s dominance in the AI market, potentially reaping substantial benefits even if Anthropic faces challenges.

Investment obsessions can escalate, as seen in the telecom bubble. As the AI craze continues, close monitoring of the interdependence between tech incumbents and entrepreneurial AI ventures is crucial to navigate potential pitfalls in this evolving landscape.

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John Smith

John Smith is a distinguished journalist, holding a Master's in Journalism from the renowned Columbia University. With a knack for uncovering the most captivating stories, John is the go-to expert for all things related to politics and current affairs. His insightful analysis and commitment to unbiased reporting set him apart in the world of journalism. John's writing ensures you're always in the know about the latest happenings in the USA.

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