The AI Bet Just Got Bigger
Last week, Oracle laid off about 30,000 workers, approximately 18% of its global workforce. Simultaneously, Oracle is planning to invest $50 billion in AI infrastructure development this year alone.
This is tectonic. Those 30,000 workers cost about $8 billion a year. The message is clear – fewer human salaries, more data centers. The amount of money spent on building data centers recently surpassed the amount of money spent on office buildings for the first time.
The server farm is the new human.
Also last week, OpenAI announced it was raising $122 billion at a staggering $852 billion valuation, the heftiest raise for a private company in history. This seemed like an incredible vote of confidence in its business.
But if you dug a little deeper, you’d see that the vast majority of this $122 billion - $110 billion – came from only 3 companies: Amazon with $50 billion, Nvidia for $30 billion, and SoftBank for $30 billion. These companies are all already massive investors and partners to OpenAI – they need it to succeed for their own sakes. Only $12 billion came from other entities and individuals, including Microsoft which has already invested billions in OpenAI.
This reminded me of a business joke: “If I owe you one million dollars, I’m in trouble. If I owe you a billion dollars... you’re in trouble.”
Microsoft, Nvidia and SoftBank are so deep in hock to OpenAI that they need it to succeed.
OpenAI recently abandoned its much-hyped Sora AI-for-video offering despite high-profile partnerships with Disney and other media companies. There wasn’t that much demand, but the costs of the computing resources for Sora were at least a million dollars a day. Hence, they pulled the plug.
Instead, last week OpenAI acquired the technology YouTube / X show TBPN. I appeared on TBPN a few months ago to talk about Noble Mobile. Why is an AI company acquiring a new media channel for hundreds of millions of dollars?
It’s a great question. The answer, in my mind, clearly seems to be to try and shape the narrative among techies around AI and OpenAI.
It’s not a normal business practice and it doesn’t make much sense in a normal world; if your business is AI, why buy a media mouthpiece? That’s... just weird.
Of course, if your stock is now valued at $852 billion, you can spend a couple hundred million on some YouTubers / X broadcasters without it being too big a deal.
But still, I find this to be something that raises more questions than it answers.
OpenAI touted its massive revenue growth – up to $2 billion a month. ChatGPT remains dominant among non-business users even as OpenAI is trying to gain traction with companies.
OpenAI’s competitor, Anthropic, is now preparing to go public in one of the biggest IPOs ever. The folks I know use ‘Claude’ as shorthand for their ass-kicking colleague in the enterprise setting. This is where OpenAI wants to be.
What are the takeaways? First, the scale of investment in AI is now so breathtaking that people are just incidental costs. Data centers are the new offices. Layoffs are the go-to move for big companies trying to take advantage of AI and will only pick up steam.
Second, in order for OpenAI to justify its new valuation, it will need to increase revenue by an additional tens of billions of dollars, which suggests to me that either it’s going to replace a huge chunk of the workforce, or it’s going to fall short of its current projections. Or maybe both.
Finally, OpenAI is the new ‘too big to fail’ company, similar to the big banks during the mortgage meltdown. Of course, the banks wound up with the federal government as a backstop. If OpenAI ever needs the Feds to step in... the market will be in big trouble.
None of this is good news. Be prepared for strange – and tough - times for people ahead.
Would you believe I started a wireless company that will reduce your time on social media and save you up to $1,000 a year? Go to noblemobile.com/yang for 3 months off your wireless bill, the best deal around that will also reduce your screen-time and help you save for your family or email matt@noblemobile.com to get a human being. I interview Mindy Finn on why she joined Forward on the podcast this week. The Hudson Valley Ideas Fest returns to Rosendale, NY on April 25th. Go outside and look up.