A prominent author and tech activist is warning Aussies that the AI bubble will burst, arguing AI is simply not profitable and marks the biggest money losing endeavour \u201cin the history of the human species\u201d.<\/p>\n
Cory Doctorow, the writer who coined the term \u201censhittification\u201d, believes AI companies have no path to profitability, with companies projected to have made $US50 billion in revenue this year against more than a trillion dollars already spent.<\/p>\n
\u201cAI companies have very, very high operating costs. And I think arguably operating costs that grossly exceed what anyone would actually pay to use their services,\u201d he told news.com.au. <\/p>\n
<\/p>\n
Every user who signs up to an AI company costs the AI company money, Mr Doctorow said. The AI company then continues to bleed more money the more the user uses it, with every query costing the company money to address.<\/p>\n
\u201cEvery generation of AI loses money faster than the previous generation. And so this is very different to the web,\u201d he argued.<\/p>\n
\u201cWhen the web started, it was losing money, but it had good unit economics. New web users<\/p>\n
made the web more profitable. New web user sessions increased the profitability of the web.<\/p>\n
\u201cAnd successive generations of the web were more profitable, generation on generation, which is how you ended up with web companies that have right-side-up balance sheets instead of web companies that are just losing billions.\u201d<\/p>\n
Mr Doctorow said it was not clear that AI could manage the same feat. He is doubtful AI companies can keep operating costs down low enough to avoid getting stuck in a \u201ctrap\u201d of raising costs for users and some users then deciding the product is not worth the price. <\/p>\n
\u201cAI switching costs are super, super low. So we saw this when Claude\u2019s new version shifted. It was demonstrably better than ChatGPT. And people just left, and they went over to Claude,\u201d he said.<\/p>\n
\u201cYou can\u2019t just halt the Red Queen\u2019s race. You don\u2019t really have these defensible moats<\/p>\n
around the product.\u201d<\/p>\n
OpenAI, Anthropic revenues rise, but profits another story<\/p>\n
OpenAI, the maker of ChatGPT, told investors its revenue grew by 18 per cent in the second quarter to $US6.7 billion. This was up from $US5.7 billion in the first quarter.<\/p>\n
However, The Wall Street Journal reports its operating margin sank further into the red, pushing it further away from profitability ahead of its highly-anticipated IPO.<\/p>\n
Audited financial documents obtained by journalist Ed Zitron and independently verified by the Financial Times revealed OpenAI lost $US38.5 billion in 2025.<\/p>\n
Revenue reached $US13.07 billion in 2025, up from $US3.7 billion in 2024. But total costs and expenses came to $US34 billion, with two biggest expenses being $US19.18 billion for research and development and $US5.73 billion for sales and marketing, and losses from operations were $US20.92 billion.<\/p>\n
OpenAI\u2019s internal documents predict a $14 billion loss in 2026, with the company not expecting to be profitable until the 2030s.<\/p>\n
Anthropic, the company behind Claude, reported its first profitable quarter with Q2 2026 revenue hitting $US11.5 billion, according to Bloomberg. This was up from $US787 million the same quarter a year earlier. <\/p>\n
However, the figures are preliminary and could be revised.<\/p>\n
What could happen if the AI bubble bursts?<\/p>\n
While Mr Doctorow expects the AI bubble will burst, he said he doesn\u2019t know when that will happen. <\/p>\n
\u201cSo there are two precepts of finance that are my alpha and my omega,\u201d he said.<\/p>\n
\u201cThe alpha is Stein\u2019s Law, which says anything that can\u2019t go on forever eventually stops. <\/p>\n
\u201cThe omega is the famous quote from John Kenneth Galbraith, which is that the market can remain irrational longer than you can remain solvent.\u201d<\/p>\n
If the AI bubble bursts, Mr Doctorow predicts we could see a massive economic vacuum, given the Magnificent Seven tech giants make up roughly 35 per cent of the S&P 500 index.<\/p>\n
But he expects we would be left with a lot of hardware that can be bought for 10 cents on the dollar, a lot of skilled technologists, and open-source models that can be optimised so AI will become a \u201cnormal technology\u201d.<\/p>\n
A famous example is DeepSeek, who reportedly built its AI models in two months with less than $US6 million using Nvidia\u2019s old H800 chips. This led to Nvidia losing $US 600 billion off its share price in a day in January 2025.<\/p>\n
Opportunity for Australia to become \u2018jailbreaking\u2019 nation<\/p>\n
Mr Doctorow said there was a \u201creal opportunity\u201d for Australia to become a \u201cjailbreaking nation\u201d, where we reverse engineer, modify and improve American technology and get our data out of them.<\/p>\n
\u201cAustralia could look at its real digital sovereignty crisis, which is not an AI crisis,\u201d he said.<\/p>\n
\u201cIf Donald Trump ordered OpenAI and Anthropic to turn off all of Australia\u2019s chatbots tomorrow, nothing happens. You don\u2019t have a ministry that shuts down. None of your structurally important firms cease to function. At the household level, some kids have to do their homework.<\/p>\n
\u201cIf Office 365 shuts down in Australia, that\u2019s it. Like Mad Max becomes a documentary. The ministry\u2019s shut down. Your structurally important firms shut down. At the household level, you\u2019re screwed.\u201d<\/p>\n
Last year, President Trump issued an executive order against the chief prosecutor of the International Criminal Court for investigating Israel for war crimes. This saw the prosecutor lose access to his Microsoft accounts.<\/p>\n
Australia has an anti-circumvention law as part of the Australia-US Free Trade Agreement of 2003, Mr Doctorow said, which means it is a crime to reverse engineer and modify America\u2019s technology without permission.<\/p>\n
\u201cThe quid pro quo for this was that Australia would get tariff-free access to American<\/p>\n
consumers, which Trump has blown up,\u201d he said.<\/p>\n
\u201cSo you have this gigantic geopolitical risk that you incurred in exchange for something you don\u2019t have anymore.\u201d<\/p>\n
Other countries also have similar rules with the US, which Mr Doctorow said meant \u201cevery country\u201d was at risk.<\/p>\n
He argued Australia could have the relationship to disenshittification that Finland had to mobile phones for 15 years when Nokia was the dominant mobile phone supplier in the world.<\/p>\n
\u201cThis is a giant economic opportunity. At the same time, you would also be hardening your country against this geopolitical risk,\u201d he said.<\/p>\n
\u201cBecoming like the jailbreaking nation is a way to create a lot of fiscal space in Australia, and also to create a lot of export goods in Australia, and also to defend Australia against American aggression.<\/p>\n
\u201cIt\u2019s a real opportunity. And if Australia doesn\u2019t do it, someone else will.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"A prominent author and tech activist is warning Aussies that the AI bubble will burst, arguing AI 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