This is a special type of small talk, usually observed around the water cooler in office spaces. There, employees frequently share all kinds of office gossip, myths, legends, inaccurate scientific opinions, thoughtless personal anecdotes, or outright lies. Anything goes. In my Water Cooler Small Talk posts, I discuss bizarre and usually scientifically invalid opinions that I, my friends, and acquaintances have heard around the office that have literally left me speechless.
So here are the water cooler opinions for today’s post.
AI is a bubble, not unlike the dot-com bubble of the early 2000s. It has no real value and will eventually decay and disappear.
Huh! 😅 There’s a lot to unpack here. Unlike the opinions I usually discuss in other Water Cooler Small Talk posts, there are no easy or simple answers in this post. AI is clearly an amazing technology and definitely a breakthrough technology of our time. A few years ago, such things could only be imagined within the realm of science fiction.
Having said that, it cannot be denied that there is some kind of influence. liveliness At least in its current state. For example, Mira Murati’s (former CTO of OpenAI) new company Thinking Machines Lab is currently valued at $12 billion, but essentially has no product. On top of this, NVIDIA reached an astronomical valuation of $5 trillion a few weeks ago (roughly equal in size to Germany’s GDP).
Working with AI models is a fairly expensive hobby with no real profits so far. Companies like Anthropic and OpenAI pay billions of dollars to run fancy models (ChatGPT alone costs $700,000 a day to run). But at least for now, they’ve made every penny back and are operating at a net loss. So what’s going on? Is there some hidden technology that suddenly comes to light and makes this whole mechanism sustainable? Are all these tech billionaires just idiots? are they scammers? Have we all been fooled into believing in an impossible and very expensive future? Or are we headed for an AI winter?
💹 What about the dot-com crash?
The most popular argument for people calling AI a bubble is the dot-com bust of the late 90s. But in fact, long before the dot-com bubble, there were many other bubbles caused by some kind of technological advancement. For example, we can think of the railroad mania of the 1840s or the radio boom of the 1920s.
anyway! What people forget when comparing the current state of AI to the dot-com bubble is that most of the dot-com companies that failed back then basically didn’t have a proven business model. Especially in the late ’90s, there were a lot of startups building on funding and the promise of a future with the internet, but no real business model on how to actually make money. Online advertising hadn’t really taken off yet, and many of those companies essentially didn’t have solid business plans.
Source: Wikimedia Commons, licensed as Public Domain, https://commons.wikimedia.org/wiki/File:Nasdaq_Composite_Index_1971_to_jan2021.svg
In contrast, most of today’s AI companies very Structured business plan. And unlike in the 90s, people, both individually and within organizations, are very comfortable with the idea that: pay As for the online stuff. Unlike in the 90s and 2000s, the concept of free things on the internet, such as torrents and the value of free in general, has completely disappeared. We all know by now that if you want something of value to come off your screen, you have to pay. Otherwise, you will see ads and noise, which will only give you an unpleasant experience.
Even the most famous dot-com failures (think Pets.com and WebVan) didn’t have the premise of the idea wrong. Pets.com delivered pet supplies to retailers. This is widely available today and is a valid and reasonable business idea. Similarly, WebVan delivered the item within 30 minutes. The market blossomed 20 years later during the COVID-19 lockdown with services like Uber Eats and Amazon Prime. Therefore, it is not the business idea or technology itself that causes a “bubble”, but rather its implementation and how mature the market for such an idea is. So my view on technology-driven bubbles is usually that the technology itself has value, but it’s probably too early and the world is too immature to implement all this potential.
💸 Are all tech billionaires just idiots?
So if the market is so immature for AI, why do these companies continue to invest so heavily in AI? Don’t they know any better? What do they expect to happen other than a crash in the AI market?
Simply put, they all just expect computing power to get cheaper.
Faster and cheaper computer chips have solved many technological puzzles that were previously thought to be unsolvable. When we think back to when humans first thought about AI, people wondered if they could build a program that could beat humans at chess. Interestingly, chess was thought to be an activity that required very high human intelligence, so naturally it would serve as a good measure of intelligent machines. A machine that is good at chess is nothing but an intelligent machine. Nevertheless, programs that beat humans at chess were ultimately made possible not by discovering fancy algorithms, but by implementing the same computational algorithms with greater computational power. And this is exactly the kind of thing everyone is waiting to see happen with AI.
In particular, current AI costs are too high. Such a model costs a lot of money to run, so it doesn’t make economic sense. It remains to be seen who will be willing to pay. That much. For example, for OpenAI to break even on its ChatGPT Plus plan, it would need to charge about $50 per month, which is more than double the current price. Therefore, creating faster and cheaper chips will make the entire process of developing and operating such models more affordable, ultimately allowing those companies to break even. In other words, advances in hardware are the levers for making AI sustainable.
It may be a cliché, but I can’t help but mention Moore’s Law at this point. Moore’s Law is the observation that the number of transistors on an integrated circuit tends to double approximately every two years, leading to exponential increases in computational power, efficiency, and cost-effectiveness over time. Although classic Moore’s Law is now somewhat dead (progress has plateaued over the past decade), the underlying ideas it spawned (the expectation that computation will continue to get dramatically cheaper) still shape the expectations of today’s tech giants.
Replacing the CPU with a GPU enables parallel processing, removing the physical limitations that existed previously. With the rise of increasingly large GPU clusters, computing power is expected to continue to grow for years to come. And this is why everyone is so bullish on this.
🤔 So where is the bubble?
A few weeks ago, Michael Burry made a $1 billion bearish bet on both NVIDIA and Palantir by buying put options on both stocks. Michael Barry is famous for shorting the housing market in 2007 and is essentially the person who predicted the entire housing bubble of 2008 and the financial crisis that followed. So, naturally, when he called out the alleged AI bubble and market crash, everyone held their breath for a minute. In late November, he mysteriously closed his investment Hard. What a bold way to declare that we are at the top of the market.
But again, AI is fundamentally different from a housing bubble. While there are limits to what we can do with our homes, the potential benefits of AI are truly limitless. AI will eventually completely change the world, so it’s more a question of when. And unlike housing, its value is not arbitrary. AI is an advanced technology, a miracle of engineering, with inherent value tied to the labor of the great minds that went into creating it. On the other hand, houses have been built the same way for hundreds of years, with some technological advances. It’s easy to dismiss AI as a speculative bubble simply because we don’t have the ability to understand it.
I think it is more appropriate to compare AI to other technological booms associated with the installation of some kind of infrastructure, such as electricity, telephones, the Internet, and even railways. Ah, but railway mania was a speculative bubble. is that so? Technology itself was not a bubble. The construction of railway infrastructure was not speculative, but had real value. The problem is that non-rail alternatives such as automobiles, airplanes, and plumbing eventually emerged, condemning the railroads to never reach their potential. In other words, transportation needs were eventually shared across several different markets apart from the railroads. This vibrancy began with the assumption that railways would be the only means of transportation. Therefore, any meaningful AI bubble will require other magical technologies to replace some of its potential.
anyway! Just like the internet, the main value of AI comes from what comes next and what’s on top of it. Having laid the power grid, you will later be able to install a large number of electrical products on it. The creation of the internet later led to the creation of numerous apps such as Google and Facebook. Naturally, the person who installs some kind of infrastructure will have to pay. a lot Because they basically pay the next person to come. However, this does not mean that the technology itself is without value and does not have the potential to lead to further significant growth.
It gives us important insights. For AI to make economic sense, it means we need to build a ton of successful and meaningful things on top of it. Investment in infrastructure itself is meaningless unless it is ultimately utilized as infrastructure. So this is the real stake and the real question that needs to be answered. The technology is there, the investment is there, the infrastructure is there. For now, we just need to see if we have enough built on top of it to be really useful.
in my heart
I know this post might age like milk. 🤷♀️ Maybe in a few weeks or months I’ll be reading that and wondering what the hell I was talking about. Still, the AI is truly impressive. Like electricity and the Internet, it is a sophisticated technology that has the potential to forever transform the world and set the stage for an entirely new era of technological growth.
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