[JCM9]

I’m bullish on AI as tech but folks are starting to sniff out that the financials of everything going on at the moment aren’t sustainable for much longer.

I hope we have more of a “reality correction” than full blown bubble bursting, but the data is increasingly looking like we’re about to have a massive implosion that wipes out a generation of startups and sets the VC ecosystem back a decade.

[hvb2]

The tech is way underpriced right now. It's basically a subsidized market right now, with the money flowing in coming from the private sector.

The problem here is that it remains to be seen who is willing to pay for the service once it's priced at cost or even with a margin. And based on valuations of AI companies one would expect a huge margin.

[ForHackernews]

It's hard for me to imagine paying real money for something that gives me a maybe-hallucinated answer that I need to check every single time. A flaky test is worse than a failing test.

[causal]

I wonder if a price correction would be a boon for open source, with the economics of smaller / self hosted models making a lot more sense when API prices have to surge.

[conartist6]

And really the reason that it would be like that is that the models don't learn, per se, within their lifetime.

I'm told that each model is cashflow positive over its lifetime, which suggests that if the companies could just stop training new models the money would come raining down.

If they have to keep training new models though to keep pace with the changes in the world though then token costs would be only maybe 30% electricity and 70% model depreciation -- i.e. the costs of training the next generation of model so that model users don't become stranded 10 years in the past.

[mistrial9]

> it remains to be seen who is forced to pay

via govt relationships, long term irreplaceable services, debt or convictions.. Also don't forget the surveillance budgets and the best spigots there, win.

[refulgentis]

It's not subsidized, lol.

Generally, I worry HN is in a dark place with this stuff - look how this thread goes, ex. descendant of yours is at "Why would I ever pay for this when it hallucinates." I don't understand how you can be a software engineer and afford to have opinions like that. I'm worried for those who do, genuinely, I hope transitions out there are slow enough, due to obstinance, that they're not cast out suddenly without the skills to get something else.

[AnimalMuppet]

A huge margin or a huge market at a moderate margin. But yes, the net profit has to be huge.

[energy123]

You're saying the unit economics are bad?

[georgemcbay]

> I’m bullish on AI as tech

I'm not bullish in the stock market sense.

Which isn't the same as saying LLMs and related technology aren't useful... they are.

But as you mentioned the financials don't make sense today, and even worse than that, I'm not sure how they could get the financials to make sense because no player in the space on the software side has a real moat to speak of, and I don't believe its possible to make one.

People have preferences over which LLM does better at job $XYZ, but I don't think the differences would stand up to large price changes. LLM A might feel like its a bit better of a coding model than LLM B, but if LLM A suddenly cost 2x-3x, most people are going to jump to LLM B.

If they manage to price fix and all jump in price, I think the amount of people using them would drop off a cliff.

And I see the ultimate end result years from now (when the corporate LLM providers might, in a normal market, finally start benefiting from a cross section of economies of scale and their own optimizations) being that most people will be able to get by using local models for "free" (sans some relatively small buy-in cost, and whatever electricity they use).

[gishh]

I think this is the rational take that everyone seems to be ignoring.

[mjr00]

The most sobering statistic I've seen is that the entire combined amount of consumer spending on AI products is currently less than the revenue of Genshin Impact.

[bobbiechen]

Indeed, bad for consumer AI. But I would expect B2B spending on AI dwarfs consumer spending, I wonder what that comparable B2B revenue would be.

[maeln]

Well, Genshin Impact is at the forefront of predatory B2C business practice. It is a gacha game, engineered to extract as much money from its prey as possible. On the other end, most AI company can afford to be generous with their user/consumer right now because they are being bankrolled by magic money. The real test will be when they have to start the enshitification. Will the product still be enough to convince consumer to spend an amount of money guarantying a huge margin for the service provider ? Will they have to rely on whale desperately needing to talk to their IA girlfriend ? Or company and people who went deep into the whole vibe coding thing, and can't work without an agent ? I think it is hard to say right now. But considering the price of the hardware and running it, I don't think they will have to price the service insanely to at least be profitable. To be as profitable as the market seems to believe, that's another story.

[underlipton]

I would be curious to see how it compares to the combined revenue of gay furry gacha games and VNs. Are we talking parity, multiples, or orders of magnitude? Anything other than the latter would be a bucket of cold water.

[HDThoreaun]

The money is in business licenses. Why only look at consumer? Consumers are mostly still using the free version which exists to convince employers to pay.

[fullshark]

AI's consumer monetization will be ad-based or as a feature for a product users want to pay for. Businesses will be the primary customer for AI.

[uhfraid]

wow, that is alarming

[moduspol]

At this point I'm just hoping we can continue to postpone reality until after Christmas.

[tracker1]

I don't know about a decade... the dotcom bubble bursting was pretty close to normal within 5 years or so. Still a long time, and from personal experience the 50% pay cut from before and a year later was anything but fun.

[mr_toad]

The market as a whole always recovers. But individual companies, or even entire industries can vanish without a trace. So betting on the entire market is a fairly safe bet, long-term. Betting on OpenAI is much more risky.