Comment by LetsGetTechnicl
12 hours ago
Gen AI is unprofitable, especially at the insanely cheap rates they've been offering to get people in the door. So expect more increases in the future.
12 hours ago
Gen AI is unprofitable, especially at the insanely cheap rates they've been offering to get people in the door. So expect more increases in the future.
These companies are unprofitable (as all companies at this stage and ambition should be) but I increasingly don't see any justification for the idea that it is fundamentally unprofitable.
Inference alone is certainly profitable. I'm running models at home that are comparable to performance of paid models a year or so ago for free. Even for much larger models the cost around inference serving are clearly manageable.
Training is where the costs are, but I'm increasingly convinced those too could have costs dramatically reduced if necessary. Chinese companies like Moonshot.ai are doing fantastic work training frontier models for a fraction of the cost we're seeing from Anthropic/OpenAI.
This isn't like Uber or Doordash where the economics fundamentally don't make sense (referring to the early days of these services where rates were very cheap).
It's a compelling story that "current AI is unsustainable", but it doesn't pan out in practice for a multitude of reasons (not the least of which is that we can always fall back to what models did last year for basically free).
And if you can run those strong models at home for free, why would hosting them be a successful business for any of these providers?
Profitable maybe, in terms of having low costs, but why pay Google or whoever when you can do it yourself for cheaper/"free"?
For free == with a huge upfront cost of getting a good enough box and running costs of maintaining it and just keeping it powered. By the time it pays off the frontier labs are three generations ahead at least.
Compare with on-demand billing per token and it just doesn’t make sense to own the hardware if you aren’t using it productively or renting it out for 95% of the time.
If you can run your server at home for free why would hosting it be a successful business for any of these propviders?
Arguably nothing even has to change with training for this to be sustainable. Dario has claimed that Anthropic is profitable on a per training run basis. They aren't profitable because they choose to keep investing in increasingly large training runs.
Cut the crap.
The value of the firm's operating assets = EBIT(1-t) - Reinvestment
You (Anthropic) want that sky-high valuation? Accept reinvestment is part of the equation.
If they decide to stop reinvesting, then they are as good as dead.
Moreover, they clearly are not re-investing cash flows from operations. Why do you think they are continually raising money? Lmao.
If it's profitable, why haven't they reported any profits? People like Ed Zitron have done the math and it just doesn't add up. I mean he just published this piece today: https://www.wheresyoured.at/ai-is-too-expensive/
Amazon was unprofitable for over a decade, and they were public. Theres no incentive to be profitable as a private company if you can continue to raise money.
Ed Zitron and Gary Marcus are... confused.
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His entire brand is that the AI bubble will burst. By his account it was supposed to have several times by now. Like the doomers, it's not if it's when and they have to keep pushing back their predictions. Funny how both camps can be so confident. Alas, that's how they get eyes, ears and dollars.
That's not to say they will be or are wrong, it's just that they aren't exactly unbiased, or humble, sources.
Yeah, at this point I think the worst-case scenario for OpenAI/Anthropic/etc is to slow down frontier model development and focus on tooling and services, as opposed to imploding completely and bursting the economic bubble. I hope?
If you don't need SOTA or near SOTA there are plenty of dirt cheap models, just look at Gemma 4 31B on Openrouter.
For all of the use cases being hyped you really do, and you actually need something much better than the SOTA models to do what we are being told can be done.
The small models are useful for small things like summarizing text or search but not much else.
Yeah a lot of AI hype is look at the amazing new thing our new model can do! Like Google at this event. But when pressed about its pricing reality the answer is “use a worse cheaper model”?? Real convincing argument there
You mean Kimi or qwen
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It is insanely profitable though, if you cut out r&d cost, plus the marketing and loss leaders. Don't let them gaslight you.
Even anthropic who does not own any hardware still have a big margin providing claude models.
Then why haven't they reported any profits using GAAP (generally accepted accounting principles)? They all use ARR which is easily gamed.
They aren't profitable on a GAAP basis and no one claims this. This obsession over profits is misguided. These are hyper growth companies growing at a scale never seen before. It is both deliberate and uncontroversial to invest in growth rather than slowing down to produce profits.
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I don't really sure, but might be they count hardware purchase as loss, too.
Google has just recently upgraded their TPUs.
Everything is insanely profitable if you ignore the costs.
The premise is if they stop training new models then it will become pure profit after 2 years when the hardware finished paying for itself.
It's pretty funny that everyone say that this business is unsustainable, but I have yet seen anyone bankrupt, even the pure hardware providers who are renting out a100 b200.
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They immediately undercut their argument to the point that I'm not sure if they were being sarcastic.
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