OpenAI’s Spending Strategy Under Debate

0:00Anthropics CEO Dario Amodey has warned of the quote unquote YOLO risk taking in the AI industry. he talked about the AI bubble and his thoughts on where his company stood, where other companies stood on this, and framed this in a really interesting way I have not heard from many other CEOs since. So today on the show, we're going to talk about what Anthropics CEO thinks about the current state of AI, what we're moving into in the future, and the state of the quote-unquote AI bubble that we see today. Before we do, if you want to try the latest models from Anthropics, OpenAI, Gemini, and all the other AI companies I talk about on the show, go check out my startup which is aibox.ai it's 20 bucks a month and you get access to over 40 of the top models including a bunch of audio models like 11 labs you get a whole bunch of really cool image models like flux for image generation open ai's image model and for 20 a month you get access to all of the top ai companies so you don't have to have subscriptions 20 subscriptions to 10 different places 20 bucks a month you get access to all of them you can compare them side by side it saves all of your files in one place you don't have to be like oh crap where did i have that conversation and go try to log into a bunch of different places, go check it out.

1:08I'll leave a link in the description to AIbox.ai. All right, let's get into what Anthropic CEO was saying. This all happened at the New York Times Dealbook Summit. The CEO of Anthropic, Dario Amadei, he gave one of the most candid assessments of kind of this financial AI bubble. He was talking about what are some timing errors in the industry, what are some unwise risks. I think in the process of all of this, he threw a lot of shade at an unnamed rival that obviously is open AI, but he never actually said their name. So the big question that he was asked is AI in a bubble. And he says that the answer is a lot more complicated rather than just saying, you know, the whole sector is overvalued or underpriced.

1:49He made, I think what I would call a much subtler argument. He said that he, you know, remains fundamentally bullish on the long-term economic potential of AI, but he also stressed that the timing of when value materializes is not very certain. He said that the uncertainty is, you know, creating kind of these operational and financial dangers. Here's a direct quote. He said, quote, there is an inherent risk when the timing of the economic value is uncertain. Companies essentially are taking these really aggressive bets, not just to compete in the market, but to stay ahead of these quote unquote authoritarian adversaries like out of China.

2:26This is a reference because China's really accelerating their AI development. And the challenge, according to Amadei, is that some firms are not, quote unquote, managing that risk well. I think this sets up a tension that is kind of has this classic bubble look to it. There's these strong long term, you know, fundamentals, but they're also combined with these short term incentives that push companies to overextend. I think all of the growth they're seeing is very rapid and the trajectory of AI kind of hides the fact that the industry has not yet proven the return on investment curve for frontier model development or also for a lot of the compute expansion.

3:07Like we see OpenAI doing these multi-billion dollar compute and, you know, building out these huge data center projects. And so I thought I think a lot of this is kind of a bit of a timing trap. Amode spent a lot of his answer discussing the lag time between investing in data centers and then actually when you see the returns on that investment. I think the economic value of AI might look really abrupt or gradual, but the data center construction timelines are fixed, right? They're very capital intensive. They're very unforgiving. He said, quote, there is a genuine dilemma that we try to manage as responsibly as we can.

3:42Then there are some players who are YOLOing who put the risk dial too far, and I'm very concerned. So I think with all of this, you know, saying that these certain companies are yellowing, he's obviously referring to OpenAI. I think he's critiquing them in a large way because of these massive infrastructure deals that they're building. They don't know how much demand they will necessarily have. They're kind of forecasting. And maybe in the future, we'll be like, wow, they were geniuses for spending all that money back then. And we really need it now. But, you know, it's definitely seems like a massive risk.

4:16but also like if I was to give a bullish spin on that as well for my personal opinion it is that they're able to raise a ton of money right now because of the way the market is and investing that into data centers which are you know I mean these are essentially an asset that is not if it's not useful to them it's useful to others so I think by investing in data centers like they're just building out their portfolio their assets their valuation because those are just tangible things that are worth a lot of money so I do think those are data centers are very worthwhile to invest in today. If they're trying to build them faster and if they're, you know, overspending in order to try to speed up the process beyond what the market would typically, you know, compensate them for, then I think that's, you know, obviously not sound business practices.

4:57But assuming they're doing that in a responsible way, I think those might be good investments. But this is what Amadeo said. He also he kind of talked about the industry's anxiety. Everyone's kind of worried about this chip depreciation timeline. GPUs continue to work for a lot of years after they're, you know, after they're created. But I think the rate that new models are coming out is making the old ones economically obsolete, which is definitely an issue. He said, the issue is not the lifetime of the chips. The issue is new chips come out that are faster and cheaper. And so the value of old chips can go down somewhat.

5:31That's interesting. We talk about the depreciation of chips over at Google or over at Meta. There was a lot of controversy that Meta was cooking the books and, you know, depreciating their chips on too long of a timeline saying that they were useful for longer than they were. Well, the chips themselves, he makes a great point are quite useful. It doesn't mean that like the new chips are so much faster and cheaper that it essentially makes the old ones useless, even if they're technically capable of continuing to compute things. I think if a company over invests in hardware, they lose the competitive value before it's fully monetized.

6:03And I think the economics of these frontier models can unravel very quickly if that happens. So, um, Anthropic, Dario says, is taking a really conservative approach to chip assumptions. They're modeling much weaker scenarios to avoid being caught upside down by rapid hardware cycles. I mean, this is a great way for him to say that they're approaching it. Also, they're growing much slower than OpenAI and they have less users than OpenAI. So to be fair, you know, taking a more conservative approach is also they have a more conservative growth rate of their company. What I will say is that Anthropics revenue has grown at a pace that not many tech companies have seen.

6:42So when you compare it to OpenAI, you're like, oh, they're smaller than OpenAI. But they're still crushing basically everybody else. They went from zero dollars to one hundred million dollars in 2023. They then went from one hundred million dollars to a billion dollars in 2024. and they're projected to hit eight to ten billion dollars by the end of 2025 so you know we go zero a hundred million a billion ten billion like every year it seems like they're growing at a very very rapid pace i will say that all of these numbers put anthropic among definitely the fastest growing startups in history but amodeo or amode said that even with all of that it would be quote really dumb for them to assume that that trajectory is going to continue indefinitely, which I do think is a valid point.

7:27He said, I don't know if a year from now it's going to be 20 billion or if it's going to be 50. It's very uncertain. I try to plan conservatively. I plan for the lower side of it, but that is very disconcerting. I think right now he's kind of underscoring how little visibility even the leading AI companies have on demand curves, the enterprise adoption speed, or even the durability of usage-based revenue, right? Like, it's so interesting to see someone that just went from zero to 100 million, 100 million to a billion, and a billion to 10 billion be like, I don't know if we're going to be at 20 billion or 50 billion in a year.

8:02Like, it's so crazy. But also, it's true. It just goes to show that even the people leading these top companies don't know. I actually appreciate how candid he was about that, because I feel like with opening eyes, Sam Altman almost like tries to appear like he's like, you know, like this wizard, this fortune teller. He's like, yeah, if you saw the things I saw, like things are going to be crazy. That's why we've got to spend all this money on all these data centers. But at the end of the day, they don't really know. They're just like hoping and guessing and, you know, making making bets. So I do appreciate how candid the CEO of Anthropic has been.

8:38I think all of this, all the conversation that he recently had inevitably drifted towards OpenAI. He never named them specifically. But last month, opening, I had this big public relations mess where the CFO suggested that the US government should backstop the company's infrastructure loans. A lot of people were very critical of that. They have to walk back the statements. He, you know, when asked about a lot of this, said that he said competitors who, quote, like big numbers or are constitutionally inclined to take enormous risks landed heavily. He said, quote, we think we're going to be okay.

9:15in basically almost all worlds. I cannot speak for other companies. So it seems like he is taking shots at opening eye, doesn't know if they're going to be okay. Obviously, there's his main competitors who's talking his own book. But I think at the end of the day, I appreciate his candor and I appreciate how candid he was with all of this, how he says he doesn't know where they will be in a year. But obviously, you can see Anthropic is one of the biggest players. They're growing. They have carved out a huge niche among developers and enterprise that is very loyal to them and really appreciates their product.

9:45So at the end of the day, I think they're going to do just fine. Hey, if you enjoyed the podcast today, it would mean the world to me if you could leave a review wherever you listen to your podcast. That's over on Apple. Drop some stars. If you're on Spotify, if you wouldn't mind hitting the about tab and leaving a review as well, really helps out the show to be found by more amazing people like yourself. And I really appreciate all of them. Also, make sure to go try AIbox.ai if you want to see all the latest AI models in one place. Thanks so much for tuning in and I'll catch you in the next episode.