Tech Stocks Fall...Is the AI Bubble Popping?
The next few weeks will tell us a lot about the future of AI investment. But I wanted to note a few startup “exits” that should be cause for concern because it’s startups that provide the asymmetric upside for investors and employees.
$Microsoft(MSFT)$ has invested over $10 billion in OpenAI and is now diversifying to run other models, $Meta Platforms, Inc.(META)$ ’s Llama model, and is investing in other AI startups.
Inflection AI was “acquired” by $Microsoft(MSFT)$ in a convoluted deal that involved hiring the company’s staff and licensing the technology developed at the startup. The price paid was enough to make investors whole, but not provide a return on the $1.525 billion invested in the company.
$Amazon.com(AMZN)$ made a similar “non-acquisition acquisition” of Adept AI the involved staff moving to Amazon and getting access to the company’s technology.
Usually venture capital deals aren’t something I would focus on, but the dollars and details are important. Microsoft, $Alphabet(GOOG)$ $Alphabet(GOOGL)$ , and Amazon have used their cloud — and access to $NVIDIA Corp(NVDA)$ chips — to fund startups through credits, or use of the cloud to train models and perform inference.
It was a non-cash investment structure that gave big tech access to startups and startups much-needed access to chips.
But the biggest names in AI startups are being acquired for what appears to be breakeven deals to appease investors. Put bluntly, the businesses they built appear to be worthless.
And so begins the questions about AI business models.
I can’t find a record of any of the AI startups being profitable or many/any public companies (outside of NVIDIA) making a profit from AI. Yet, earnings multiples have exploded in the hope that there will be some future profit at the end of the AI rainbow.
If early earnings are any sign, the AI bubble is starting to lose its luster.
Goldman Sachs questioned the investment made in AI and Sequoia asked the $600 Billion Question.
If AI isn’t all it’s cracked up to be, the market will be in for a rough few months. Are you prepared if the AI bubble pops?
https://asymmetric-investing.beehiiv.com/p/this-week-on-wall-street
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