The AI Bubble Is Bursting

27:31when the Wall Street Journal's Joanna Stern wrote about Sora, OpenAI's yet to be released video generating chatbot she talked about how it's photorealistic clips were good enough to freak her out and I get it at first glance these do look like people these images do, they look like something approaching a video they look almost real kind of like text from chat GPT is almost right, or it's right fully, but it doesn't feel right but much like the rest of these outputs you look a little closer and they have these weird errors like cars disappearing in and out of the shot or a different car coming out from behind something or completely different images between frames or these strange unrealistic moments of lighting and they're never much longer than 30 seconds stern who by the way deeply respect, isn't really afraid of what Sora can do, but what would happen if OpenAI was able to fix the hallucination problems that makes these videos kind of unwatchable.

28:38While it's easy to imagine tools like Sora could eventually play a role in online disinformation campaigns churning out like lifelike videos of politicians saying or doing appalling things, we can all breathe a sigh of relief in knowing that the videos themselves are often so flawed you can pretty much instantly see their AI generated. Also, Sora is not available to the public yet, and I don't even know if it ever will be. You just need to look at the hands or the backgrounds. Look at the people in the background of any AI-generated photo or video. They often contain too many fingers, or you can't see their faces.

29:15Or in Sora's videos, their legs don't look right. It's so weird, and I don't... I don't know how to put it perfectly, but they don't feel human. Just to be clear though, Sora is dead on arrival. No one actually has access to it. It's unclear when it will come out. Every journalist that has quote-unquote used Sora has just given a prompt to OpenAI to run. But there's also a very obvious problem that kind of relates to something I mentioned in the previous episode. OpenAI and every generative AI company, they're all dependent on high quality data to train the models. And video data is so much larger, more complex, and harder to find.

30:00There's less of it because it's visual media. And it's just a much bigger, more complex model and a much harder computational task to create video. Moving image is, it's actually putting aside my anger about generative AI, it's amazing they've done even this, but to be clear, as amazing as it might look, it isn't enough to do anything. It's just a kind of a doohickey. And this data is so much more complex than the text-based data that OpenAI is running out of to make ChatGBT spit out words. Even if there were enough data, there's pretty good reason why OpenAI is coy about when they'll release the model.

30:42Like I said, it's expensive and complex to run, and at no point has anyone asked how the fuck this actually makes them any money, how they sell this. It's so weird. To be clear, when you use Sora, it turns text prompts into a video. You can't edit the video, you can't change the video, the video is what the video looks like. There's no way to make Sora make the same thing multiple times, which makes the very basics of making film, which is multiple angles of the same thing, completely goddamn impossible. In fact, consistency between the same two prompts is impossible from these models because they're all probabilistic.

31:24We've recently seen some of the first quote-unquote movies made with Sora, and the first one was called Airhead, which is about a minute long. It's this man with a balloon head walking around, and it's got this, it's very twee, it sucks. It's just, putting aside the AI part. It's just crappy. And it's got a guy being like, yeah, having a balloon head is difficult. Yeah, it's weird. I hate having a balloon head. I hope I don't get popped. It sucks. It's really bad filmmaking. But also each shot, and there's multiple shots of this guy with a yellow balloon head, looks completely different. It's a different balloon every goddamn time.

31:59And it's so funny because you have these guys on Twitter going like, oh my God. Oh my God. I'm crying and pissing myself. This is the best thing I've ever seen. But it isn't. It's so close yet so far away. And the only reason it's impressive is people are willing to sit there and say, but what if it wasn't shit? But it is. It really is. Like every other generative output, it's superficially impressive, kind of, sort of lifelike. But once you look at it for more than the moment, it's just flawed, terribly, irrevocably flawed. It's time to wake up. We are not in the early days of AI. We're decades in, and we're approaching the top of the S-curve of innovation.

32:48There are products being built, don't worry. But it's all things like Claude Author, which creator Matt Schumer calls a chain of AI systems that will write an entire book for you in minutes, and I call a new kind of arsehole that can shit more than you'd ever believe. Generative AI is the ugliest creation of the rot economy, and its main selling point is that it can generate a great deal of parsable material. Images generated from generative AI models like OpenAI's DALI all have the same kind of eerie feel to them, as they're mostly trained on the same data, some of it licensed from Shuttstock, some of it outright plagiarized from hundreds of artists.

33:28Without sounding too wanky and philosophical, everything created by generative AI feels soulless, and that's because it is. No matter how detailed the prompt, no matter how well-trained the model, no matter how well-intentioned the person writing that prompt, these are still mathematical solutions to the emotional problem of creation. One cannot recreate the subtle fuck-ups and delightful little neurological errors that make writing a book or a newsletter or a podcast special. While this podcast is admittedly trying to generate what I believe AI might do in the future, it's not generative and it's not generated as a result of me mathematically considering how likely an outcome is.

34:08My fury is not generated by an algorithm telling me that this is the right thing to be angry at. I'm pissed off because I feel like we're all being lied to and treated like idiots. What makes things created by humans special isn't doing the right thing or the best thing, but the outputs that result in us fighting past our own imperfections and maladies, like the strep infection I've been fighting for the last few days. And like, look, to my knowledge, you can't give a generative AI strep throat, but if I ever find out it's possible, I will make it my damn mission to give it to ChatGPT.

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36:41All of this hype is predicated on solving problems with artificial intelligence models that are only getting worse. And OpenAI's only answers to these problems are a combination of, we'll work it out eventually, trust me, and we need a technological breakthrough in both chips and energy. That's why Sam Altman has been trying to raise$7 trillion, and that's not a mistake by the way, to make a new kind of AI chip. Because there's no sign that this or even future generations of chips will actually fix anything. Generative AI's core problems, its hallucinations, its massive energy, and its massive unprofitable compute demands are not close to being solved.

37:23I've now watched a frankly alarming amount of interviews with both OpenAI's CEO Sam Altman and their CTO Mira Morati, and every time they're saying the same specious empty talking points, promising that in the future, chap GPT will do this and that, as all evidence points to their models getting worse. And through the last years, by the way, they've just said the same thing in every interview. They always talk about ChatGPT being like something that will help creatives. They never really say how. It's just kind of weird. But yeah, generative AI models, they're expensive, they're compute intensive, and they don't seem to provide obvious tangible mass market use cases.

38:02Marathi and Altman's futures depend heavily on keeping the world believing that development and improvement of these models' capabilities will continue at this rapacious pace of progress, even though it's unquestionably slowed, with OpenAI even admitting themselves that their latest model, GPT-4, may actually be worse at some tasks. A study from UC Berkeley last year found that GPT-4 was actually worse at coding than before, and that ChatGPT was, at times, refusing to do certain tasks. Nobody wants to work anymore. I feel like I'm walking down the street telling people their houses are on fire, only to be told to stop insulting their new heating system.

38:46These models aren't intelligent. They're mathematical behemoths generating the best guess on training data and labelling, and thus they don't really know what they're being asked to do. You can't fix that. You can't fix hallucinations. You can't just make these problems go away with more compute. you can mitigate them the current philosophy by the way is that you can use another model to look at another model's outputs which as i mentioned in the previous episodes is very silly but seriously everyone telling you hallucinations are going away look a little deeper and look at when they actually failed to tell you how they were it's just very silly look every bit of excitement for this technology right now is based on this idea of what it might do as i've said and that quickly gets conflated with what it could do which allows sam altman who by the way is far more of a marketing person than an engineer his one startup looped was a failure he's failed upwards he was in y combinate he did this it's actually ridiculous he's so famous all of this bullshit it allows him to sell the dream of open ai and he's selling it based on the least specific promises i've seen since mark zuckerberg said we'd live in our bloody oculus headsets and it's frustrating.

40:00Because this money and this attention could go to important things. We have real problems in society. I believe that Sam Altman, and pretty much anyone in a position of power and influence in the AI space, has been tap dancing this entire time, hoping that he could amass enough power and revenue that his success would be inevitable. Yet I think his hype campaign has been a little bit too successful. And it's deeply specious. And he, along with the rest of the AI industry, has found himself suddenly having to deliver a future that he's not even close to developing. I am always scared of automation taking our jobs.

40:39I think it's always worth being scared of. But I don't think that's the thing the tech industry is working on right now. I don't think they're close. And I think there's something more imminent to fear. And that thing is the bottom falling out of generative AI. as companies realize that the best they're going to see is maybe a few digits of profit growth. Companies like NVIDIA, Google, Amazon, Snowflake, and Microsoft, they have hundreds of billions of dollars of market capitalization, as well as expected revenue growth, tied into the idea that everyone's going to integrate AI into everything, and that they'll be doing more than they are today.

41:16You can already see the desperation coming from these companies, like Microsoft, for example, which in March effectively absorbed a company called Inflection AI into itself, kind of an acquisition by stealth. Inflection AI is a public benefit company that portrays itself as a nicer, gentler version of OpenAI. Its core product, a chat GPT-style chatbot, counts its empathetic tone, its humor, and its emotional awareness. Inflection was created in 2022 with an all-star founding team that included Reid Hoffman, the founder of LinkedIn, and Mustafa Suleiman, the British-born co-founder of DeepMind, which Google acquired in 2014.

41:50team. In mid-2023, Microsoft took part in a$1.3 billion funding round, which saw the company acquire a significant stake in Inflection alongside other AI players like NVIDIA. Inflection's core product has the same inherent underlying issues as every other generative AI product, Hallucinations, for example, but it has an accomplished team that has taken a different approach to its competitors, whereas ChatGPT and Claude2 tend to be, or at least aspire to be, functional, tools that provide information or complete tasks, Inflection sought to make its product feel a bit more organic. For Microsoft, the appeal was obvious.

42:25It has so much riding on its AI ambitions, both in terms of money spent as well as its share price, that it can't really afford to appear stagnant or worse as though it made a bad bet. Acquiring Inflection would help it maintain its image, especially with idiot Wall Street analysts. But here's the problem. Microsoft already holds a massive stake in open AI, and regulators, both in America and Europe, are wary of market consolidation. Acquiring inflection, it'd give them a little too much scrutiny. So Microsoft took a third, nastier path. Instead of buying the company, it bought the employees, with Suleiman and the majority of his co-workers jumping ship to found Microsoft's new AI division.

43:06It secured the talent, a subsequent$650 million licensing deal, yet another example of Microsoft basically paying itself, and then gave that deal to the shell of inflection, you know, the one without any of the staff left, giving it access to the company's tech, its IP, and there's nothing regulators could do to stop it. To be clear, Microsoft is in a position where it could easily absorb the shockwave of a potential AI bubble burst. It still prints money from its other business units like Office and cloud computing, Microsoft Windows and the Xbox gaming system. And the same is true for the other big names like Google and NVIDIA.

43:44They're well insulated for any slowdown in AI investment or from a growing apathy towards AI enterprise customers. I will note, however, these massive investments in data centers, if they're all for naught, you will see a form of crash. I can't say the same for startups, though. Other companies aren't going to be so lucky. Stability AI, the developer of Stable Diffusion, a generative AI that can produce images from written prompts, innovative for the time, is perhaps the canary in the coal mine of peak AI. Stability AI rode the same waves as OpenAI, especially in 2023, but now that money is tighter and skepticism is higher, it's struggling to stay afloat.

44:24Although the company raised$100 million in early 2023, it burned through nearly$8 million a month, and in a recent attempt to raise further cash, they failed. The company routinely missed payroll, and according to Forbes, amassed a sizable debt with the US tax authorities that culminated in threats to seize the company's assets. They owed debts to Amazon, Google, and CoreWeave, a niche compute provider that specializes in AI applications. With negligible revenues and rapid cash burn combined with no obvious way to monetize the product, Stability AI is now in turmoil, with its key talent leaving the company in March, followed by the company's CEO and co-founder, Imad Mustac.

45:03Its ongoing existence is in question, with the Financial Times writing in March that the company's future, despite once being seen as among the world's most promising startups, is in doubt. While it would be fair to say that Stability AI was unique in its internal turmoil, its external pressures, the ability or lack thereof to monetize an expensive product, and its reliance on external funding to survive, are much more common across the industry. Its survival depended on investors believing in a lofty future for AI, where it's integrated into every facet of our lives, and it plays a role in almost every industry, which, of course, we now know it doesn't.

45:39While that belief hasn't been shattered, or at least not yet, it's fair to say that expectations and aspirations are increasingly tempered. After reaching the apex of the AI piss-fest, the tech industry is getting a hangover, and companies like Stability can't survive the headache. But to be clear, I am not excited for the AI bubble to pop. And on some level, as weird as it sounds, I kind of hope it doesn't. Once it bursts, the AI bubble will hit far more than the venture capitalists that propped it up. This hype cycle has driven the global stock markets to their best first quarter in five years.

46:16And once the markets fully turn on the companies that falsely promised an AI revolution, it's going to lead to a massive market downturn and another merciless round of layoffs throughout the tech sector led by Microsoft, Google, and Amazon. This will in turn suppress tech labor and flood the market with tech talent. It's going to suck for everyone involved in software. A market crash led by the tech industry will only hurt innovation further, draining the already low amounts going into the hands of venture capitalists that control the dollars going into new startups. And once again, the entire industry will suffer because people don't want to build new things or try new ideas.

46:55No, they want to fund the same people doing the same things or similar things again and again because it feels good to be part of a consensus even if you're wrong. Silicon Valley will continually fail to innovate at scale until it learns to build real things again. Things that people actually use and things that actually do something. I don't know if I want to be right or wrong here. If I'm wrong, Generative AI could replace millions of people's jobs, something that far too many people in the media are excited about, despite the fact that the media is the first industry that OpenAI kind of wants to automate.

47:29If I'm right, we're going to face a dot-com bubble-esque town turn in tech, one that's far worse than what we saw in the last few years. In any case, I do wish the tech industry would get their heads out of their arses. I'm tired. I'm tired of watching tech firms lie through their teeth about the future, that we'll live in the metaverse, that our future will be decentralized and paid for in cryptocurrency, and that our world will be automated with chatbots. I truly think that these companies think regular people are stupid, which is why Microsoft put out a minute-long Super Bowl commercial for their Copilot AI that featured several prompts, like write the code for my 3D open world game, that don't actually do anything.

48:09That prompt I just mentioned, go type it into Copilot. It'll give you a guide to coding a game. No code created. Also, in the commercial, he types in classic truck shop called Paul's. But none of these image generators can actually do words. So it just looks like skaboo. Go and do it. Trust me, it's funny. But every time that these big tech booms happen, every time they say, oh, we're going to live in the metaverse and oh, we're going to be able to automate everything. every time they lie the world turns against the tech industry and this particular boom is so craven in its falsehoods that i think it'll have a dramatic chilling effect on tech valuations if the bubble pops quite as severely as i expect and sam altman desperately needs you to believe the bubble won't pop he needs you to believe that generative ai will be essential inevitable and intractable.

49:03Because if you don't, you'll suddenly realize that trillions of dollars of market capitalization and revenue are being blown on something. It's kind of mediocre. If you focus on the present, what OpenAI's technology can do today, and will likely do for some time, you see in terrifying clarity that generative AI isn't really a society-altering technology. It's just another form of efficiency-driving cloud compute software that benefits kind of a small amount of people. If you stop saying things like AI could do or AI will do, you have to start asking what AI can do. And the answer is not that much and probably not that much more in the future.

49:46Sora is not going to generate entire movies. It's going to continue making horrifying human adjacent creatures that walk like the Yat-Hats from Star Wars and cartoons that look remarkably like Spongebob Squarepants. ChatGPT isn't going to run your business because it can barely output a spreadsheet without fucking up the basic numbers if it even understands what you're asking it to do in the first place. I think that AI has maybe three quarters to prove itself worthwhile before the apocalypse really arrives. When it does, you're going to see it first in the real infrastructure companies, starting with NVIDIA, who's grown to about$2 trillion in market capitalization because of the chips they make, which are pretty much the only ones that can power the AI revolution.

50:27There are other companies like AMD and Micron, but NVIDIA is the one that's really grown. If you watch any of their keynotes, they're insane. They're just full of fan fiction. Once NVIDIA starts to see growth slow, and Oracle in particular, Oracle, massive data center company, massive database company as well, one of their largest customers, Microsoft, building data centers for them. Once that starts slowing down, that's when you should start worrying. But the real pain is going to come for Amazon, Microsoft, and Google when it's clear that there's not really that much revenue going into their clouds.

51:02Once that happens, once you start seeing Jim Cramer on CNBC saying, I don't think the AI boom is here, despite having saying it just was, that's when things get nasty. And the knock-on effects will be horrible. It's going to be genuinely painful, worse than we've seen the last few years. and it's all a result of the same problem it's all a result of the growth at all cost tech economy when things are made to expand when things are made to build more rather than build better when you're building solutions to use compute power to sell cloud computing services rather than helping real people make their lives better tech is not building for real people anymore and the AI revolution, despite its specious hype, is not really for us.

51:49It's not for you and me. It's for people at Satya Nadella of Microsoft to claim that they've increased growth by 20%. It's for people like Sam Altman to buy another fucking Porsche. It's so that these people can feel important and be rich rather than improving society at all. Maybe I'm wrong. Maybe all of this is the future. Maybe everything will be automated. but I don't see the signs. This doesn't feel much different to the metaverse. There's a product but in the end what's it really do? Just like the metaverse I don't think many people are really using it. All signs point to this being an empty bubble and I'm sure you're sick of this too.

52:30I'm sure that you're sick of the tech industry telling you the future's here when it's the present and it fucking sucks. I'm swearing a lot and I'm angry but I'm justified in this anger I feel. I'm not telling you how to think and I've heard from some of you saying, oh, don't tell me how to think. And I agree, I agree. I'm not here to tell you to be angry about anything, but I want to give you at least my truth. I don't want to give you what I see is happening because I don't feel like enough people are doing that in the tech industry. And that's what Better Offline is going to continue to be.

52:58I really appreciate you listening. It's been about a month, month and a half since we started. It's only going to get better from here. Thank you.

53:14Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Ossowski. You can check out more of his music and audio projects at matosowski.com. M-A-T-T-O-S-O-W-S-K-I.com. You can email me at easy at betteroffline.com or check out betteroffline.com to find my newsletter and more links to this podcast. Thank you so much for listening. Better Offline is a production of Cool Zone Media For more from Cool Zone Media Visit our website, coolzonemedia.com Or check us out on the iHeartRadio app Apple Podcasts, or wherever you get your podcasts

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