Summary:
There is a growing belief that the AI sector may be facing a financial bubble due to unsustainable business models. Among the primary concerns is that nearly all AI users access AI tools for free, leaving companies like OpenAI and Anthropic without meaningful recurring revenue.
Although it’s worth noting there is a distinction between profitable firms like Nvidia, which sells hardware, and pure-play AI software companies that lack viable monetization paths. Microsoft may be able to profit off of products such as XBox, but many question how it can achieve returns on their trillion-dollar AI investments unless they develop scalable revenue streams.
AI providers cannot survive indefinitely without user fees or enterprise licensing models, leaving many to conclude that the AI boom may collapse if widespread user adoption doesn’t translate into sustainable revenue.
Transcript:
Doug McIntyre: Lee, there’s an emerging opinion that shorting the entire AI sector, that means utilities, it means the big tech companies, it means the financial firms that are, you know, funding data centers. It means the venture capitalists that have put money into things like, you know, OpenAI, Anthropic. The theory is basically this – AI is mostly free. Huge majority of the people, more than 99 out of a hundred people use it every day for free. And there really aren’t any other business models that exist, that have been successful, incredibly successful for years and years and years don’t have a large number of paying customers. Either millions of people paying you know, sort of some money, maybe it’s $10 or a small number of enterprise customers paying millions, if not billions of dollars. Right now, the artificial intelligence revolution falls into the first category without any question. Almost everybody using AI doesn’t pay a dime.
Lee Jackson: No, I never have. You can get upgraded platforms, but I mean, I’m sure it’s way above my pay grade to even use ’em, so I don’t have to. So yeah, I think it’s interesting. And plus, we’re hearing now, Doug, and it’s getting louder and louder and louder, there may be an AI bubble, and you know, I mean the, the sheer trillions of dollars that have been thrown at this, I think, I think the big concern across Wall Street and maybe across the world is that for the kind of capital that’s being put into this. It’s kind of the road you’re going down is where, how is this gonna be recouped? It’s one thing to see how Nvidia will recoup stuff ’cause they sell chips and it’s another thing to see how, you know, other people involved in whatever area of the AI explosion, whether it be the utilities, well they sell electricity, you know. But yeah, just the sheer chat bot, you know, function themselves, how are they gonna make back the kind of money that’s been thrown into this?
McIntyre: If you look at Nvidia as a publicly traded company, no one has had to put any money into Nvidia in decades. I mean, as a startup, maybe they did for a few years. It’s an honest to God business. You know, it’s not hard for us to say, a company, here’s how it makes money. You may say, well, the multiple on that, money’s too high. But when you move to OpenAI, Anthropic, and then I’m gonna segregate for a second – the parts of Microsoft and Meta that are close to pure plays in AI. So let’s take XBOX, let’s take all the other stuff that Microsoft does. Okay? The, the businesses that they’ve been in for years. Free AI, and let’s segregate the money they put into AI to turn into businesses. The return on that second pot of money is potentially never. If, if they invest, Microsoft invests a trillion dollars into AI, say energy data farms, you know how much money you’d have to make to get a return on that value over time?
Jackson: It is gigantic. It has to be. Well, again, at least Microsoft, you know, they have other income streams. But, but all of the companies that are basically providers, you know, AI providers from a chat standpoint, they can’t all survive with no fee forever.
McIntyre: They can’t all survive number one. Number two, the entire premise that’s being challenged right now is that there is a way to get people to pay, OpenAI money to use, you know it’s primary product, which is free. I mean, I understand you can get an upgrade for 10 bucks a month, but the people who will make the money – here’s my projection – on products from OpenAI are companies that can make adaptations to that and sell it based on segments, industry segments. I take an AI application, I design it to replace Appellate Attorneys, and you pay me for that software application. But in that case, I’v added some flavor. I’ve put some salt on it, some paprika. I’ve designed it so that a company can actually use it for a specific set of purposes where it’s replacing humans or it’s replacing something else. But being the primary provider an AI software function, people aren’t gonna pay for it. There’s no case in businesses history where it’s free, it’s freem it’s free, it’s free. Oh God, you gotta pay for it. And everybody’s, “Oh, we’re happy to.” Even the internet wasn’t free.
Jackson: Yeah, absolutely.
McIntyre: I paid money for AOL every month to get on the internet, and I still pay my cable provider Spectrum. The internet is not free to me. I can’t get there without writing a check. I don’t write it to “the internet”, but I do write it to somebody who allows me access.
Jackson: Yeah. Well, and I write, I write, I do the same. I write a check to Comcast via Infinity or Xfinity every month. And gladly because it’s reasonable and my service is great, it’s super fast, but, you know, I have to have that, I don’t have to have a chat bot ’cause, you know, if, if I’m, I can always just, you know, use search normal search and find it myself eventually, just not as fast.
McIntyre: This is my final say on this. AI will collapse as a business for one reason. They won’t be able to charge for it. The fact that it could be one of the most important advances in human history. I don’t even wanna get into that bit ’cause I’m not smart enough. I am smart enough to know that if you spend trillions of dollars building something and then give it away for free, it’s not a good business.
Jackson: No, it’s kind of hard to justify that business model. Yeah, I agree. It, gonna be interesting to see how this plays out because they’re gonna have to make sure that their AI applications can fit into corporate sort of situations and how can they help, you know, big corporations, because it won’t be to tell me, you know, how many Doodle dogs exist, you know, or, or whatever, you know, people are asking. And I know there’s a zillion functions, but again, until there’s an inbound pay or a pay wall, like so many people use, I agree. I don’t see how they’re gonna monetize this and make money.
McIntyre: A lot of people smarter than me say that there’s gonna be an AI collapse. I’m gonna say it ’cause I’m stupid enough to simply say, if people won’t pay for something, you can’t make money on it.
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