Good News Everyone

Ed Zitron publishes a lot of pretty biased reporting.

The core thesis is sound, though:

• Anthropic and OpenAI's revenue comes in from customers.
• The revenue does not translate into profits, because their capital expenditures investing in future capabilities is quite high, and because their operating expenses are also quite high, to where their revenue doesn't even cover their ongoing compute cost.
• The actual money Anthropic and OpenAI have to spend at a loss comes from their investors.
• The customers are largely vulnerable to shocks and are themselves reliant on investor cash rather than a profitable business model of their own, and are essentially subsidizing a lot of the demand for the core services that Anthropic and OpenAI provide.

Taken together, the whole ecosystem is currently relying on a continued influx of cash from investment: investors taking equity in these companies, lenders/bondholders charging interest on borrowed money, otherwise profitable businesses like Google and Meta steering their other profits into investment into AI.

And so if there's a shock to investment activity, such as if there's a war in Iran causing an energy crisis and a global recession in real economic activity, that might translate into a cash crunch, as the investors pull back right at the time that the customers start defaulting on their payments. And if you remove the middleman startup businesses that pay Anthropic and OpenAI more than they receive from their own customers, the underlying "real customer" demand at the actual unsubsidized prices charged by Anthropic and OpenAI will plummet.

I'm not a tech guy, but I am a business/finance guy, and I'm not seeing where the analysis is wrong. The argument is always that there's a runway to profitability, and they just need to take off before they run out of runway. And we can argue about whether they will or they won't get to takeoff, but if the business is relying on more runway being built because they know for sure they don't currently have enough runway to take off, that's a shaky situation to be in. Even if everyone is clamoring to be their runway-building partner today.