The week of Donald Trump’s inauguration, Sam Altman, the CEO of OpenAI, stood tall next to the president as he made a dramatic announcement: the launch of Project Stargate, a $500 billion supercluster in the rolling plains of Texas that would run OpenAI’s massive artificial-intelligence models. Befitting its name, Stargate would dwarf most megaprojects in human history. Even the $100 billion that Altman promised would be deployed “immediately” would be much more expensive than the Manhattan Project ($30 billion in current dollars) and the COVID vaccine’s Operation Warp Speed ($18 billion), rivaling the multiyear construction of the Interstate Highway System ($114 billion). OpenAI would have all the computing infrastructure it needed to complete its ultimate goal of building humanity’s last invention: artificial general intelligence (AGI).
But the reaction to Stargate was muted as Silicon Valley had turned its attention west. A new generative AI model called DeepSeek R1, released by the Chinese hedge fund High-Flyer, sent a threatening tremor through the balance sheets and investment portfolios of the tech industry. DeepSeek’s latest version, allegedly trained for just $6 million (though this has been contested), matched the performance of OpenAI’s flagship reasoning model o1 at 95 percent lower cost. R1 even learned o1 reasoning techniques, OpenAI’s much-hyped “secret sauce” to allow it to maintain a wide technical lead over other models. Best of all, R1 is open-source down to the model weights, so anyone can download and modify the details of the model themselves for free.
It’s an existential threat to OpenAI’s business model, which depends on using its technical lead to sell the most expensive subscriptions in the industry. It also threatens to pop a speculative bubble around generative AI inflated by the Silicon Valley hype machine, with hundreds of billions at stake.
Venture capital (VC) funds, drunk on a decade of “growth at all costs,” have poured about $200 billion into generative AI. Making matters worse, the stock market’s bull run is deeply dependent on the growth of the Big Tech companies fueling the AI bubble. In 2023, 71 percent of the total gainsin the S&P 500 were attributable to the “Magnificent Seven”—Apple, Nvidia, Tesla, Alphabet, Meta, Amazon, and Microsoft—all of which are among the biggest spenders on AI. Just four—Microsoft, Alphabet, Amazon, and Meta—combined for $246 billion of capital expenditure in 2024 to support the AI build-out. Goldman Sachs expects Big Tech to spend over $1 trillion on chips and data centers to power AI over the next five years. Yet OpenAI, the current market leader, expects to lose $5 billion this year, and its annual losses to swell to $11 billion by 2026. If the AI bubble bursts, it not only threatens to wipe out VC firms in the Valley but also blow a gaping hole in the public markets and cause an economy-wide meltdown.
via https://dair-community.social/@timnitGebru/114316268181815093
It’s so funny, because people act like open AI has a viable business model, but they’re loosing money even on their paying customers, even the highest tier of subscription. The product they’re selling really isn’t good enough to charge the price they would need to charge to pay for the operation costs, let along the training costs, and that’s with Microsoft giving them a bunch of servers for essentially free.
Like, there isn’t a path to profitability for them, certainly not on this scale. They’re just praying that if they throw enough data in to a big enough model that somehow it will start doing something different than what it currently does. It’s not a plan, it’s a prayer, a cult.