This week some long-standing trends in the technology sector surfaced more emphatically. First, the growing influence of large technology companies on politics and governance, and second, the question of whether AI models are economically sustainable, with even "life-threatening" market conditions for AI startups such as OpenAI. In the crypto market, it was complete chaos.
Big Tech and Political Influence
Leaders of technology companies are increasingly trying to gain influence over social and political processes. It is no longer just Elon Musk, who last month, as a born South African with Canadian passport and naturalized to American, tried to emerge as an expert of German society and openly called for support for the AfD, now Germany's second party with 21%.
Amazon founder Jeff Bezos is suddenly also a political activist. The surely not typically leftist Wall Street Journal is merciless to Bezos, delicately pointing out that Amazon recently paid $40 million for an authorized documentary on Melania Trump entirely by accident, "three times as much as any other bid." The WSJ continues:
"There were the flattering tweets with which Bezos applauded Trump's victory and his prominent presence alongside other tech leaders at the inauguration-Zuckerberg, Musk, Tim Cook of Apple and Sundar Pichai of Google, among others. Their seats on stage, directly behind Trump and in front of the cabinet, could be interpreted in two ways: as a historic gathering of new economic and tech powerhouses showing their support for the new administration, or as a hostage video of billionaires held captive by a menacing strongman.
Another shock followed this week when Bezos announced that the opinion pages of the Washington Post (bought by Bezos in 2013, MF) would henceforth be devoted to defending the principles of "personal liberty and free markets." This shift to the right led to the resignation of David Shipley, the section's editor-in-chief. Critics condemned the move as an attempt to suppress liberal opposition and criticism of Trump, while others noted that such views are widely represented in other publications."
Bezos is now working on his PR by shooting singer Katy Perry in space, with Oprah's bestie and his own fiancée, a more original way to test your relationship than Temptation Island.
New macho tech-bro: Alex Karp
Now the formerly media-shy Palantir CEO Alex Karp is surfacing, openly advocating a system in which democratically elected leaders are replaced by an AI-driven bureaucracy in a new book. His argument is that AI can make decisions more efficiently than human administrators. Bloomberg, also rarely accused of leftist leanings, judged Karp's book harshly:
"It’s a major complaint of the authors of The Technological Republic (Crown Currency, Feb. 18) that people today shrink from saying what they think. Too many of us, they insist, give mealy-mouthed, wishy-washy answers when asked. We have become uncomfortable with making moral and aesthetic judgments, they say.
I agree, and I'm going to break the taboos. The Technological Republic is a terrible book: badly written, boring and-when the ideas can be picked up between the jargon, clichés and repetitions-full of bad ideas ranging from questionable to reprehensible and disturbing. This book is abysmal in both form and content. It sketches a dark and depressing future."
Not a review that will make the back cover of the book, which should be seen primarily as a brochure for Palantir.
Big Tech cries out for government intervention
The founders of Big Tech companies Meta, Amazon and Tesla position themselves as indispensable to economic and social progress and argue that their success is the result of technological and market superiority. At the same time, Meta, with click-happy algorithms, is largely responsible for sharing disinformation and sowing social discord, Amazon is the pinnacle of consumerism with a history of sad working conditions, and Tesla enjoyed as much as $38 billion in government subsidies. Thus the Washington Post in an article that still dared to spout some criticism of Tesla's success based ons o-called
free market forces.
With the imminent introduction of artificial general intelligence (AGI), technology is playing an increasing factor in society. Whereas at the end of last century politicians were often scornful of what was mostly described as nothing more than automation, it is only now being understood that the ongoing digitization of the world is spilling over into AGI systems that, without democratic control, run the risk of a small number of technology company leaders amassing disproportionate power.
Big Tech's interests do not parallel societal values such as privacy, democracy and public participation. The tech-bros think first and foremost about quarterly earnings.
The missing business model of AI
Speaking of quarterly earnings pressure; within the technology sector, there is an ongoing debate about the effectiveness of different business models. A major issue is always whether companies should bundle technologies or offer them as separate products. An example of this is Microsoft's acquisition of Skype for $8.5 billion, a sum that was probably never recouped due to ambiguity about the pricing model and lack of integration into MS Office.
Om Malik delightfully cynically concludes at the announcement that Microsoft is shutting down Skype: "Skype's demise is a good lesson in how ineffective middle management can destroy good acquisitions. I have never met a Skype manager on Microsoft's side who had any imagination. Most were such "drones" that next to them even a red clay brick would come across as a genius work of art.
Microsoft Teams is a terrible product-and I hate using it. In the simplest terms, Teams is the perfect summary of a bureaucratic, outdated and archaic 50-year-old company trying to reinvent itself as a leader in AI."
If the relatively straight forward product Skype, which already had millions of users worldwide, is so complex to be profitably exploited by a giant like Microsoft, it will be especially interesting to see if opaque billion-dollar investments in AI are ever going to deliver the intended returns. The quarterly earnings reports of Microsoft, Meta and Amazon are being increasingly scrutinized by analysts for their spending on AI. Although these companies are investing tens of billions in AI, Nvidia is the only one consistently benefiting from this trend, and it remains unclear whether the Big Tech companies will ever turn a profit on their AI investments.
Big problems for AI startups
For leading AI startups, it's all hands on deck this year. In recent weeks, Grok 3 (from x.ai, owned by Elon Musk), Claude 3.7 Sonnet (Anthropic) and ChatGPT 4.5 (OpenAI) have been launched. Analyses show doubts about the quality and efficiency of this latest generation of AI applications. "It's a lemon," headlines Ars Technica about ChatGPT-4.5.
Gary Marcus points out several problems with OpenAI:
- GPT-4.5 is expensive and offers no significant advantages over competitors.
- Initial interest in OpenAI is waning.
- There is no clear business model that guarantees profitability over time.
- OpenAI currently makes a loss on every transaction.
- Microsoft is distancing itself more from OpenAI.
- There is high turnover among key staff, including Sutskever, Murati and Karpathy.
Ethan Mollick, on the other hand, remains positive about advances in AI: "The intelligence of AI models is increasing, and costs are falling." But people like Mollick are now a minority among investors.
The problem for AI startups such as Elon Musk's X.AI, Sam Altman's OpenAI and competitors such as Anthropic (with Claude) and Mistral, is the increasing doubt about real technological advances relative to rising development and operating costs. Investors are increasingly questioning the long-term profitability of AI companies.
The discussion is no longer about the beliefs of AI proponents, who regard AI development almost as a religion, or the objections of the non-believers, let me call them "AI-theists," but about economic reality. The key question is not whether AI can continue to grow and fundamentally improve, but whether it can do so profitably. In the investment world, there are serious doubts about two things:
- Whether the costs of AI development will ever outweigh the benefits and whether a sustainable business model is possible in which companies like OpenAI become profitable,
- Whether AI models actually deliver the expected improvements that allow the end users of AI applications, the customers of OpenAI, Microsoft, Google etc, to operate more cost-effectively.
For OpenAI, this is an urgent problem. Companies like Microsoft, Google, Meta, Oracle and Salesforce invest tens of billions in AI every year, but can absorb losses with profits from other activities. OpenAI, on the other hand, is completely dependent on AI and remains heavily loss-making.
Legendary investor Vinod Khosla, among other early backers of OpenAI, openly says that he expects most investments in AI to be loss-making. Of course, that does not apply to his own investment in OpenAI, because he was in it so early that any sale of OpenAI will be a hit for Khosla.
For now, Nvidia is benefiting from the confidence within Big Tech that increasingly powerful and expensive chips are the solution. The company again achieved record results, although profit margins are declining. Gross margin nevertheless remained at an impressive 72%. Not surprisingly, Nvidia rose another 4% on Friday and still ended February with a 7% gain, while the major stock market indices recorded losses. Barron's therefore half-jokingly called Nvidia a value stock.
DeepSeek with bad news for OpenAI
DeepSeek, OpenAI's Chinese nemesis, claimed yesterday on X to have a much more efficient cost structure: "Our cost-benefit ratio is 545 percent." A more detailed explanation later followed on GitHub, to which Techcrunch sharply concluded:
"The company (DeepSeek, MF) wrote that if it looked at the usage of its V3 and R1 models over a 24-hour period, and if all that usage had been billed at the R1 prices, DeepSeek would have already generated $562,027 in daily revenue. At the same time, the cost of leasing the required GPUs (graphics processing units) would have been only $87,072.
The company admitted that actual revenue is significantly lower for several reasons, including discounts during nighttime hours, lower prices for V3 and the fact that only a portion of services are monetized, while access via web and app remains free.
If the app and website were not free and other discounts did not exist, usage would presumably be much lower. Therefore, these calculations seem largely speculative-more an indication of potential future profit margins than a realistic representation of DeepSeek's current financial situation.
But the company is sharing these numbers amidst broader debates about AI’s cost and potential profitability."
Surely every investor now has the idea that DeepSeek has a much better chance of becoming profitable than OpenAI, which no longer has a substantial technological edge, dubbed in Silicon Valley as a "moat," nor does it have the financial capabilities needed to eliminate the competition. Consider how, for example, Mark Zuckerberg once bought fast-growing competitor Instagram with Meta. Sam Altman does not have that option.
The next few months will be decisive for OpenAI. The company desperately needs capital. It is now at the mercy of Softbank's Masayoshi Son, who is already raising $16 billion in loans with his cap in hand, indicating that the industry's biggest financiers are cautious. Even if all the money Softbank is now raising in loans were to go into OpenAI, which is doubted, the question is how far OpenAI will get with that money.
Savior from Abu Dhabi or a mirage?
Another possible investor is Tahnoon bin Zayed al Nahyan, an influential Abu Dhabi financier, irreverently dubbed the "Spy Sheikh" by the Wall Street Journal . As manager of several Abu Dhabi sovereign wealth funds, including MGX, he could turn out to be the financial decision maker on OpenAI's fate.
The question, meanwhile, is whether OpenAI can survive another year without rapid funding. If there is no urgent injection of billions, a takeover lurks. Microsoft already owns 49% of the shares, is the main provider of cloud infrastructure and could cough up as much as $100 billion to buy out the existing shareholders in OpenAI. That's a very different reality for OpenAI CEO Sam Altman than it was a few months ago, when he still thought he could raise $30 billion against just 10 percent of the shares.
Blood bath in the crypto market
In episode 5 of the NFA Podcast (for Nish, Frackers and Anyone Else, and, of course, for Not Financial Advice), Nish eats an Indian green chili because she had lost the bet on a rising or falling market. She was dressed in red to symbolize the carnage in the crypto market.
In more relevant news: we discussed the drop in new token launches on Pumpfun, BlackRock's Bitcoin sales and the SEC's ruling that meme coins are not securities. That would normally be positive news for the speculative crypto market, but it didn't matter last week: almost everything plummeted.
The Bybit hack, which was linked to North Korean attackers, was also discussed in detail and showed vulnerabilities in multi-signature transactions. Finally, we discussed whether Bitcoin will still reach an all-time high this year and how its correlation with traditional markets is developing. We agreed, which is not the intent of the format.
Episode 5 of the NFA Podcast. "Crypto bloodbath, the Bybit hack fall out and will Bitcoin 'go rogue' to hit an ATH?" is available to listen to now or watch here on YouTube and also here on Spotify.
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