OpenAI Is Lehman Brothers: A Looming AI Crisis

In a thought-provoking analysis, Ed Zitron draws parallels between the 2007 Lehman Brothers collapse and the current state of the AI industry, particularly focusing on OpenAI. Here are the key points:

The Lehman Brothers Comparison

• Herd Mentality: Just as Lehman Brothers was over-leveraged in risky mortgages due to a prevailing market optimism, the tech industry today is heavily invested in generative AI.
• Misjudged Valuations: The optimism around AI echoes the misconceptions during the housing bubble, with high valuations based on flawed assumptions of continued growth.

Current AI Landscape

• Investment Surge: In the recent month, global venture funding reached $28 billion, with significant portions directed towards AI, raising concerns about market distortion.
• Lack of Killer Apps: Generative AI still lacks groundbreaking applications and faces challenges such as requiring extensive training data and suffering from inaccuracies known as “hallucinations.”
• Financial Drain: Companies in the AI sector are burning through cash, with OpenAI notably spending billions without a sustainable revenue model.

Impending Crisis

• Price Increases: As companies like OpenAI exhaust their funding, they will likely need to raise prices, which could render generative AI integrations unsustainable for many startups.
• Venture Capital Retreat: This situation may scare off venture capital investments, leading to a significant downturn in the tech industry, reminiscent of the consequences following Lehman's collapse.

Conclusion

• Zitron emphasizes that while Lehman Brothers was profitable during its rise, the current AI models lack a viable path forward, risking a broader tech industry crisis if trends do not change.