{"id":152483,"date":"2025-11-21T20:01:14","date_gmt":"2025-11-21T20:01:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/152483\/"},"modified":"2025-11-21T20:01:14","modified_gmt":"2025-11-21T20:01:14","slug":"does-the-world-really-want-what-sam-altman-is-selling","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/152483\/","title":{"rendered":"Does the world really want what Sam Altman is selling?"},"content":{"rendered":"

Fans of Dr Seuss will know by heart the key stanzas of Green Eggs and Ham:
Do you like
Green eggs and ham?
I do not like them,
Sam-I-am.
I do not like
Green eggs and ham.<\/p>\n

For those who have never had to read a bedtime story, allow me to explain. An irrepressible little creature, Sam-I-am, spends the entirety of the book pitching green eggs and ham \u2014 on the face of it, an unappetising dish \u2014 to a sceptical and increasingly irascible larger creature. With every page, the pitch grows more elaborate. On a boat? With a goat? In the rain? On a train? Surely, there must be some context in which green eggs would be appealing fare. By the time Sam prevails, his hapless victim inhabits a scene of chaos.<\/p>\n

When you come to think of it, there is often someone called Sam trying to sell you something you don\u2019t initially want. In the 1920s, as I learnt from Andrew Ross Sorkin\u2019s page-turner 1929, it was Sam Crowther whose article \u201cEverybody Ought to Be Rich\u201d \u2014 by buying stocks with margin credit (loans from brokers to investors) \u2014 captured the hubris of the Roaring Twenties. <\/p>\n

A few years ago it was Sam Bankman-Fried<\/a> with his crypto exchange FTX. \u201cI have an abundance mentality,\u201d Bankman-Fried declared at the height of his fame. \u201cI want FTX to be a place where you can do anything you want with your next dollar. You can buy bitcoin \u2026 You can buy a banana.\u201d And you could also have bought green eggs and ham \u2014 until FTX blew up and Sam landed in jail.<\/p>\n

\"Sam<\/p>\n

Sam Bankman-Fried, co-founder of FTX, whose cryptocurrency exploits landed him in jail<\/p>\n

LAM YIK\/BLOOMBERG\/GETTY IMAGES<\/p>\n

A lot of the applications of generative artificial intelligence (AI) remind me of green eggs and ham. Take OpenAI\u2019s Sora 2.0. With a few prompts, you can generate soft-porn videos of scantily clad Manga girl-elves. This is also one of the ways Elon Musk<\/a> tries to sell XAI\u2019s Grok. But why would I want to watch such videos, any more than I want to eat green eggs and ham?<\/p>\n

Financial history can help us here. If you\u2019re unsure if there\u2019s an AI bubble, just refer to the historian Charles Kindleberger\u2019s five-stage model:<\/p>\n

1 Displacement: Some change in economic circumstances creates new and profitable opportunities for certain companies.<\/p>\n

2 Euphoria or overtrading: A feedback process sets in whereby rising expected profits lead to rapid growth in share prices.<\/p>\n

3 Mania or bubble: The prospect of easy capital gains attracts first-time investors and swindlers eager to defraud them.<\/p>\n

4 Distress: The insiders discern that expected profits cannot possibly justify the now exorbitant price of the shares and begin to take profits by selling.<\/p>\n

5 Revulsion or discredit: As share prices fall, the outsiders stampede for the exits, causing the bubble to burst altogether.<\/p>\n

We are currently at stage 3.<\/p>\n

It is impossible to read the first part of Sorkin\u2019s 1929, with its shameless self-promoters, big-spending bankers and irrationally exuberant retail investors \u2014 above all, with its rampant leverage \u2014 without being reminded of our own times. We too easily forget that underpinning the stock market boom of the Twenties were the tech stocks of the day: RCA, for example, the company that encapsulated the possibilities of mass entertainment on radio, vinyl and celluloid.<\/p>\n

Today, we\u2019re being offered something even more alluring than the cornucopia of the Jazz Age. According to the median forecast of Ezra Karger\u2019s Longitudinal Expert AI Panel (LEAP), by 2030 more than 18 per cent of American work hours will be AI-assisted. By 2040, AI will be as important to this century as electricity or the car were to the previous one. Indeed, there is a one in three chance that AI is going to rank alongside the printing press as a technology that \u201cchanged the course of human history\u201d.<\/p>\n

Even if AI falls short of that, Reuters reported last week that 97 per cent of listeners cannot tell AI-generated and human-composed songs apart. The song topping the country charts, Breaking Rust\u2019s Walk My Walk, is yet more AI slop.<\/p>\n

AI, or rather the promise of AI, is now the principal driver of both the US economy and the stock market. Between a sixth and two fifths of the rise in GDP over the past year is attributable to investments in computer and communications equipment, including chips, data centres, grid upgrades and AI software.<\/p>\n

The US fund manager Ruchir Sharma estimates that AI companies account for 80 per cent of the gains in US stocks this year. The blogger-economist Noah Smith notes that \u201cmore than a fifth of the entire S&P 500 market cap is now just three companies \u2014 Nvidia, Microsoft and Apple \u2014 two of which are basically big bets on AI\u201d. <\/p>\n

\"Illustration<\/p>\n

A poster for The War of Wealth, a Broadway melodrama inspired by the Panic of 1893, which marked a period of economic depression in America<\/p>\n

ALAMY<\/p>\n

The so-called Magnificent Seven (those three plus Alphabet, Amazon, Meta and Tesla) account for more than a third of the S&P. Quarterly capital expenditure (capex) by these companies now exceeds $110 billion, roughly three times what it was two years ago. A huge proportion of the total \u2014 nearly two fifths \u2014 consists of purchases by everyone else of Nvidia\u2019s graphics processing units (GPUs).<\/p>\n

The standard analogy is with the dotcom bubble that peaked in 2000. The standard counterargument is that the value of Nvidia is much lower relative to the company\u2019s earnings than was true of the tech giant Cisco 25 years ago. Unlike most other stock markets (except Japan\u2019s), the growth in US market cap reflects rising earnings, not just rising valuations.<\/p>\n

Moreover, in the late 1990s capex, much of it in fibre optic cables, ran far ahead of demand. The same is not true of demand for GPUs. Nvidia, which this week announced record revenue growth, cannot keep up with AI-driven demand for additional \u201ccompute\u201d. Nor can the American power grid. One of the unintended consequences of the AI capital expenditures boom is that US electricity bills are up 7 per cent this year.<\/p>\n

Add to that the sheer speed of adoption of AI. More than 18 billon messages are sent to OpenAI\u2019s flagship large language model, ChatGPT, every week. The rate of adoption is far higher than that of the world wide web in the 1990s.<\/p>\n

In short, AI is changing the 2020s economy faster than the internet changed the 1990s economy. In a recent paper, Stanford University\u2019s Erik Brynjolfsson and co-authors show that, since the widespread adoption of AI, workers aged 22-25 in the most AI-exposed occupations, such as legal services, \u201chave experienced a 13 per cent relative decline in employment, even after controlling for firm-level shocks\u201d. Talk to anyone in investment banking and they will tell you that their programmes to hire entry-level analysts are being slashed.<\/p>\n

For all these reasons, 19th-century US railroads may be a better analogy than 1990s telecoms. Think of today\u2019s capital expenditures on data centres being like that on railways 150 years ago. And there\u2019s the rub. Two things can be true at the same time: a) AI could be as economically worthwhile an investment as railroads and b) we could still experience at least one stock market crash along the way to its general adoption.<\/p>\n

The problem arises, as Noah Smith has argued, if \u2014 as happened in 1873 and 1893 \u2014 investors suddenly realise that their returns won\u2019t be quite as rapid as they had expected. If AI investors realise the same, or that returns won\u2019t accrue to the companies doing all the big-ticket investment, a crash is likely. Moreover, history tells us that the economic hit will be proportionately larger depending on how much of the capital expenditures are being financed by debt, as opposed to equity of cash flow from other sources.<\/p>\n

Established big tech remains safer<\/p>\n

Clearly, the \u201chyperscalers\u201d formerly known as Big Tech \u2014 Microsoft, Amazon, Meta and Alphabet \u2014 can finance the lion\u2019s share of their capital expenditures from free cash flow because they already run hugely profitable software, cloud-computing, search and platform businesses. And equally clearly, they\u2019re likely to continue to invest in Nvidia<\/a> as long as Jensen Huang\u2019s chip design and software remain state of the art. But OpenAI is another matter.<\/p>\n

According to the Wall Street Journal, Sam Altman \u201crecently told employees that OpenAI wanted to build 250 gigawatts of new computing capacity by 2033 \u2026 a plan that would cost over $10 trillion by today\u2019s standards\u201d. That would also be equivalent to a third of current US peak energy usage. Altman\u2019s pitch is to promise global economic transformation if he can get enough computing capacity. But he adds a non-zero risk that artificial general intelligence wipes out humanity, which somehow makes it even more impressive.<\/p>\n

\"OpenAI<\/p>\n

The chief executive of OpenAI, Sam Altman, wants more computing capacity<\/p>\n

UICHI YAMAZAKI\/AFP\/GETTY IMAGES<\/p>\n

Yet OpenAI is not quite ten years old; it used to be a non-profit; its corporate governance has sometimes resembled a soap opera; its flagship product ChatGPT is only three years old; and its burn rate (the amount of money it loses each quarter) may be the highest in history. How does Altman propose to pay for 250 gigawatts of new computing capacity? The answer is only partly by taking out bank loans ($4 billion to date). Nor is it by issuing bonds. But it still involves debt of a kind \u2014 from just about everyone else in the AI game.<\/p>\n

Altman has signed a $22.4 billion cloud contract with CoreWeave. He has signed a $38 billion deal with Amazon Web Services. He has agreed to buy Broadcom\u2019s custom chips and networking equipment. The only hitch is that \u201cOpenAI is in no position to make any of these commitments\u201d, as one analyst told the Financial Times last month. <\/p>\n

Why? Because while Altman says the company\u2019s annualised revenue is \u201cwell more\u201d than $13 billion, its losses in the last quarter amounted to $12 billion. Edward Zitron is one of a number of analysts sceptical about OpenAI\u2019s path to profitability. The company\u2019s claim that revenue will grow to $100 billion by 2028 seems implausible. It would certainly be unprecedented.<\/p>\n

Some of OpenAI\u2019s financing is being provided by Microsoft, with which it has a revenue-sharing agreement. There are also deals with Google and Nvidia. Perhaps the most important part comes from Larry Ellison\u2019s Oracle, one of the parties to the Stargate project, a joint venture announced in January to invest $500 billion in AI infrastructure for OpenAI.<\/p>\n

These deals are complex. The Nvidia-OpenAI deal, for example, entails an agreement from Nvidia to lease up to five million of its chips to OpenAI. In return, Nvidia will invest up to $100 billion in OpenAI over time to help the company pay for the chips. In that way, Nvidia serves as both an investor in and supplier to OpenAI.<\/p>\n

Similarly, OpenAI may be on the hook to pay more than $20 billion to CoreWeave, but it also owns part of CoreWeave, \u201chaving made a $350 million equity investment in the company before its initial public offering\u201d.<\/p>\n

Other deals involve similar circular financing. The Wall Street term for this is \u201croundabouting\u201d. The phrase \u201chouse of cards\u201d also comes to mind, as clearly anything that caused a significant equity market correction would pose serious problems for the stability of this structure.<\/p>\n

What might lead investors to revise downwards their expectations about the money to be made out of generative AI? I can think of four good reasons for disappointment:<\/p>\n

From sell-off to shock to recession<\/p>\n

First, the realisation that ChatGPT is more of an upgrade on Google Search than a productivity-raising miracle. The bulk of ChatGPT use is by people seeking practical guidance, information or technical help. By contrast, according to an MIT study, 95 per cent of organisations are getting zero return on their AI investments. That\u2019s because employees are using it to generate what the Harvard Business Review has dubbed \u201cworkslop\u201d.<\/p>\n

Second, OpenAI has serious competition. A year ago, its share of the generative AI market was 86.6 per cent. Today it\u2019s 72.3 per cent. Google\u2019s Gemini is gaining rapidly. And Anthropic is beating OpenAI when it comes to enterprise AI.<\/p>\n

Third, all the US AI players face competition from China\u2019s open-source models, which have rapidly outstripped their US counterparts when it comes to worldwide adoption. More and more US companies, such as Airbnb, are quietly using Chinese models because they are cheap. When Jensen Huang says \u201cChina is going to win the AI race\u201d that seems like bad news for Sam-I-am.<\/p>\n

\"Jensen<\/p>\n

Jensen Huang, chief executive of Nvidia, which AI relies on for technology, is in pole position to win the global AI \u201crace\u201d<\/p>\n

ARTUR WIDAK\/NURPHOTO\/GETTY IMAGES<\/p>\n

Finally, if GPUs are serving implicitly as collateral for AI debt, that\u2019s a potential headache, too. Just ask Michael Burry, who made his name with the \u201cbig short\u201d of US real estate before the global financial crisis. Unlike railroads, GPUs are short-lived assets with a useful life of perhaps five years. Or is it eight? Or two? No one knows.<\/p>\n

As I said, mild disappointment can cause a crash even when the technology is awesome and the investment will ultimately be worth it for society as a whole. That was scant consolation to those who lost their shirts on railroad securities in 1873 and 1893. How far an equity sell-off today would cause a wider shock, even a recession, depends on the extent of the financial contagion. <\/p>\n

Step forward Oracle, which has about $96 billion of long-term debt, up from $75 billion a year ago, with a potential total of $290 billion by 2028, according to Morgan Stanley. Oracle\u2019s debt-to-equity ratio has surged to 500 per cent, compared with Amazon\u2019s 50 per cent and Microsoft\u2019s 30 per cent. The price of Oracle credit default swaps (a derivative you buy to protect you against a company failing to honour its debts) has doubled since September.<\/p>\n

\"Illustration<\/p>\n

Does anything artificially intelligent spring to mind?<\/p>\n

It\u2019s all fine, just fine, in current financial conditions, which are as easy as they have been in three years. But you have to ask yourself: are the 1920s calling to ask for their financial history back?<\/p>\n

Certainly, when I read in The Wall Street Journal that \u201cthe fates of the world\u2019s biggest semiconductor and cloud companies \u2014 and vast swathes of the US economy \u2014 [are tied] to OpenAI, essentially making it too big to fail\u201d, I have only one response:
I do not like them,
Sam-I-am.
I do not like
Green eggs and ham.<\/p>\n","protected":false},"excerpt":{"rendered":"Fans of Dr Seuss will know by heart the key stanzas of Green Eggs and Ham:Do you likeGreen…\n","protected":false},"author":2,"featured_media":152484,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,218,219,61,60,80],"class_list":{"0":"post-152483","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-ie","12":"tag-ireland","13":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/152483","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=152483"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/152483\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/152484"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=152483"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=152483"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=152483"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}