By Edward Zitron, CEO of EZPR
The recent developments surrounding OpenAI, including the hasty launch of the o1 model, rumors of price hikes for future OpenAI models, layoffs at Scale AI, and the departure ofkey OpenAI executives, paint a worrying picture. These events, according to Edward Zitron, CEO of national media relations and public relations firm EZPR, are signsthat the generative AI boom is unsustainable and heading towards a crash.
Zitron argues that this crash could have devastating consequences for big tech companies, severely disrupting the startup ecosystem and further eroding public trust in the tech industry. He also highlights the potentialhuman cost of an AI bubble burst, with thousands of jobs at risk and significant damage to various sectors within the tech industry.
The Unstable Foundation of Generative AI
OpenAI, a seemingly non-profit organization, israpidly transforming into a profit-driven entity. To survive, OpenAI needs to continue raising funds at a scale exceeding any previous startup. The company is currently in the midst of a funding round aiming to secure at least $65 billion, possibly reaching $70 billion, led by Thrive Capital with rumored participation from NVIDIA.
Adding to the concerns, OpenAI is seeking $5 billion from banks through a revolving credit facility, which often comes with higher interest rates. Furthermore, OpenAI is negotiating with MGX, a $100 billion investment fund backed by the United Arab Emirates, and potentially seeking funding from the Abu Dhabi InvestmentAuthority. This desperate search for capital from entities like the UAE or Saudi Arabia suggests a dire situation, as companies wouldn’t turn to these sources unless they were in dire need.
OpenAI previously attempted to raise funds at a $100 billion valuation earlier this year, but some investors balked at the price,partly due to concerns about overvaluation in the generative AI sector. To secure this funding round, OpenAI might transition into a for-profit entity. Reports suggest that this investment round could involve a significant shift in OpenAI’s structure.
The Looming Crisis
Zitron believes that the current situation is unsustainable andhighlights the need to understand the instability and the magical thinking that has fueled this AI frenzy. He argues that the rapid rise of generative AI, fueled by hype and unrealistic expectations, has created a bubble that is bound to burst.
The potential consequences of this crash are significant. Large tech companies, heavily invested ingenerative AI, could face substantial losses, leading to layoffs and a decline in investment in the sector. The startup ecosystem, reliant on funding and support from these companies, would suffer greatly. Ultimately, the public’s trust in the tech industry could be further eroded.
A Call for Caution
Zitron’sanalysis serves as a stark warning about the dangers of unchecked hype and the need for a more realistic assessment of the generative AI landscape. As the industry races towards a future dominated by AI, it is crucial to remember that the current trajectory is unsustainable. The potential consequences of a bubble burst are too great to ignore.
References
- OpenAI’s ‘Foolish’ Trick: A Warning Sign for Big Tech? by Edward Zitron, EZPR (Original article)
- Various news reports and articles on OpenAI’s funding rounds and recent developments.
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