The AI bubble is simple, says Ed Zitron, because it’s actually a bubble of one company: OpenAI.
As the ChatGPT maker heads toward a major IPO, the researcher and AI skeptic says OpenAI is the only reason anyone cares about AI, and that if OpenAI fails, it will cause a collapse similar to the one that caused Lehman Brothers when the bank collapsed in 2008.
Zitron has repeatedly sounded the alarm about AI in general and OpenAI in particular, and last month released a report showing that OpenAI’s finances are in shambles.
“The launch of ChatGPT in November 2022 comes at the perfect time for a tech industry that has been running out of ideas,” he wrote in a July 15 post. “OpenAI’s existence legitimized the era of mania and luxury,” he added, noting that OpenAI is also the reason its biggest competitor, Anthropic, exists in the first place. That’s partly because its founders come from OpenAI, but also because it’s funded by competing tech giants who are looking to plant their own flag on the AI frontier by backing OpenAI’s biggest rival.
He argues that the AI bubble was actually made possible by Sam Altman’s company and the attention it received from the public, investors, and the ecosystem of companies that grew out of it.
“The only reason this has lasted this long is that OpenAI hasn’t collapsed yet,” he wrote. “That failure will be the tipping point of the Lehman Brothers AI bubble, an event that will define the end of one era and the beginning of the next.”
Zitron doesn’t have a prediction on when or how OpenAI will fail, but he sees it as a watershed event that could transform a market that has rallied around AI trade and an economy that has been fueled by endless capital spending by companies pursuing AI ambitions.
For example, Zitron theorizes that if OpenAI stopped paying infrastructure companies like CoreWeave and Oracle, those companies would be unable to service their own debts. If it struggles further, OpenAI could discontinue ChatGPT’s free tier and raise costs for users, and the ultimate impact of its woes could be to deter investors from investing in AI startups altogether.
“Once OpenAI collapses, I believe it will have a violent and punitive impact on the entire stock market. It will portend an even bigger drawdown as everyone acknowledges that the AI bubble has burst,” he added.
Zitron said the spending that sparked the AI bubble represented “the greatest misallocation of capital in history,” a phrase echoed by fellow AI researcher Gary Marcus, who has also expressed major concerns about AI bubbles.