There is no doubt that OpenAI is taking a lot of risks by betting that AI adoption will translate into revenues in the very short term. And that could really happen imo (with a low probability sure, but worth the risk for VCs? Probably).
It's mathematically impossible what OpenAI is promising. They know it. The goal is to be too big to fail and get bailed out by US taxpayers who have been groomed into viewing AI as a cold war style arms race that America cannot lose.
> The goal is to be too big to fail and get bailed out by US taxpayers
I know this is the latest catastrophizion meme for AI companies, but what is it even supposed to mean? OpenAI failing wouldn’t mean AI disappears and all of their customers go bankrupt, too. It’s not like a bank. If OpenAI became insolvent or declared bankruptcy, their intellectual property wouldn’t disappear or become useless. Someone would purchase it and run it again under a new company. We also have multiple AI companies and switching costs are not that high for customers, although some adjustment is necessary when changing models.
I don’t even know what people think this is supposed to mean. The US government gives them money for something to prevent them from filing for bankruptcy? The analogy to bank bailouts doesn’t hold.
I think what Altman is looking at is becoming so codependent with NVidia and Microsoft that they'll all go down together, meaning the US government would have to deal with the biggest software company and the biggest chip company both imploding together.
If you look at the financial crisis, the US government decided to bail out AIG, after passing on Bear Sterns, because big banks like Goldman Sachs and Morgan Stanley (and even Jack Welch's General Electric) all had huge counterparty risk with AIG.
>I know this is the latest catastrophizion meme for AI companies, but what is it even supposed to mean?
Someone else put it succintly.
"When A million dollar company fails, it's their problem. When a billion dollar company fails, it's our problem"
In essence, there's so much investment in AI that it's a significant part of the US GDP. If AI falters, that is something that the entire stock market will feel, and by effect, all Americans. No matter how detached from tech they are. In other words, the potential for the another great depression.
In that regard, the government wants to avoid that. So they will at least give a small bailout to lessen the crash. But more likely (as seen with the Great Financial Crisis), they will likely supply billions upon billions to prop up companies that by all business logic deserved to fail. Because the alternative would be too politically damaging to tolerate.
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That's the theory. These all aren't certain and there are arguments to suggest that a crash in AI wouldn't be as bad as any of the aforementioned crashes. But that's what people mean by "become too big to fail and get bailed out".
The closest analogy is the dot-com crash and there really wasn't any bailout for that, despite the short term GDP impact. And billion-dollar companies were involved back in the day too, like Apple, Microsoft, Amazon, Ebay etc. etc.
If they aren't dumb, why are they investing in MSFT now then if it's a bubble that's doomed to fail? And even in the worst case scenario, a 10-15% decline in the S&P 500 won't trigger the next Great Depression. (Keep in mind that we already had a ~20% drawdown in public equities during the interest rate hikes of 2022/2023 and the economy remained pretty robust throughout.)
Like I said, they aren't "that" dumb. They are playing a risky game, but when they see the number go down rapidly they will pull. Which will make the line go down even faster.
>And even in the worst case scenario, a 10-15% decline in the S&P 500 won't trigger the next Great Depression
Only if you believe the 10% decline won't domino and that the S&P500 is secluded from the rest of the global economy. I wish I shared your optimism.
> and the economy remained pretty robust throughout.
Yeah and we voted the person who orchestrated that out. We don't have the money to pump trillions back in a 2nd time in such a short time. Something's gonna give, and soon.
> Only if you believe the 10% decline won't domino and that the S&P500 is secluded from the rest of the global economy. I wish I shared your optimism.
So your hypothesis is that a 10% decline in the S&P 500 will trigger the next Great Depression, i.e. years of negative GDP growth and unemployment? I agree that it could cause a slight economic slowdown, but I don't think AI and tech stocks are a large enough part of the economy to cause a Great Depression-style catastrophe.
The problem is that the non AI economy is already in the toilet. The consumer and commodities markets are all flashing red. Consumer debt is all time high. Inflation is still punishing the bottom end of workers severely and the ACA cuts will cause a lot of financial stress (unless people of course discountinue their plans)
An expected outcome from a AI blowout is the uncertainty and everyone holding onto their assets and credit recalls plus interest rate hikes.
During the great depression it wasn't the stock market collapse that caused it as much as it was the credit crunch that followed. Prior to the blowout people literally bought stocks on credit.
>So your hypothesis is that a 10% decline in the S&P 500 will trigger the next Great Depression, i.e. years of negative GDP growth and unemployment?
Yup. I won't say it's the only factor, nor biggest. But I'm focusing on this topic and not 40+ years of government economic abandonment of the working class. It's the straw that will break the camel's back.
> If OpenAI became insolvent or declared bankruptcy, their intellectual property wouldn’t disappear or become useless
Yes but with all stock growth being in AI companies it would tank the market for one. Secondly, all of those dollars they are using are backed by creditors who would have a default. short of another TARP (likely IMO, the US NEEDS to keep pumping AI to compete with China) .... it could scare investors off too..
Plus with the growth in AI effecting the overall makeup of the stockmarket, something like this hurts every Americans 401k
It is the term "mathematically impossible" that caught my attention. Since it is about the future promise of OpenAI, one could debate the likelihood or "statistically improbable", but "mathematically impossible" implies some calculation, proof and certainty. Hence my curiosity.
I've seen some calculation I think from an HSBC analyst that it would take a monthly subscription of $200/mo. from some large portion of the US population for some insane number of years to break even.
OpenAI’s customer base is global. Using US population as the customer base is deliberately missing the big picture. The world population is more than 20X larger than the US population.
It’s also obvious that they’re selling heavily to businesses, not consumers. It’s not reasonable to expect consumers to drive demand for these services.
I'd be willing to bet that, like many US websites, OpenAI's users are at lest 60% American. Just because there's 20x more people out there doesn't mean they have the same exposure to American products.
For instance, China is an obvious one. So that's 35%+ of the population already mostly out of consideration.
>It’s also obvious that they’re selling heavily to businesses, not consumers.
I don't think a few thousand companies can outspend 200m users paying $200 a month. I won't call it a "mathematical impossibility", but the math also isn't math-ing here.
Even if you grant that OpenAI might be as successful as Apple at international expansion and support, that’s still only a non-US market about double the size of the US market.
Bailing out OAI would be entirely unnecessary (crowded field) and political suicide (how many hundreds of billions that could have gone to health care instead?)
If it happens in the next 3 years, tho, and Altman promises enough pork to the man, it could happen.
>Bailing out OAI would be ... political suicide (how many hundreds of billions that could have gone to health care instead?)
Not that I have an opinion one way or another regarding whether or not they'd be bailed out, but this particular argument doesn't really seem to fit the current political landscape.
on the one hand, i understand you are making a stylized comment, on the other hand, as soon as i started writing something reasonable, i realized this is an "upvote lame catastrophizing takes about" (checking my notes) "some company" thread, which means reasonable stuff will get downvoted... for example, where is there actual scarcity in their product inputs? for example, will they really be paying retail prices to infrastructure providers forever? is that a valid forecast? many reasonable ways to look at this. even if i take your cynical stuff at 100% face value, the thing about bailouts is that they're more complicated than what you are saying, but your instinct is to say they're not complicated, "grooming" this and "cold war" that, because your goal is to concern troll, not advance this site's goal of curiosity...
Apparently we all have enough money to put it into OpenAI.
Some players have to play, like google, some players want to play like USA vs. China.
Besides that, chatting with an LLM is very very convincing. Normal non technical people can see what 'this thing' can already do and as long as the progress is continuing as fast as it currently is, its still a very easy to sell future.
I don't think you have the faintest clue of what you're talking about right now. Google authored the transformer architecture, the basis of every GPT model OpenAI has shipped. They aren't obligated to play any more than OpenAI is, they do it because they get results. The same cannot be said of OpenAI.
Correction: OpenAI investors do take that risk. Some of the investors (e.g. Microsoft, Nvidia) dampen that risk by making such investment conditioned on boosting the investor's own revenue, a stock buyback of sorts.
