FameEX Hot Topics | The Hype of AI Mania Approaches Its Conclusion

The first half of 2023 has seen an unprecedented surge in funding for AI large language models (LLMs), amounting to over $25 billion. This influx has propelled the AI industry to the forefront of the venture capital (VC) market, surpassing the once-hot cryptocurrency sector. However, concerns are mounting as signs of weaknesses in the AI bubble become evident, raising fears of an imminent burst.

The rise of AI dominance in the VC market commenced with the introduction of OpenAI's ChatGPT on November 30, 2022. Following a tumultuous year for the cryptocurrency industry in 2022, VC investors sought alternative opportunities, and ChatGPT's remarkable demand, attracting a million users in just five days, presented an attractive entry point for major tech giants such as Microsoft, Google, and Facebook to venture into the AI space.

As established tech companies competed to create their AI language models, a myriad of smaller startups also emerged, aiming to capitalize on the AI boom. VC funds poured into AI ventures, resulting in record-breaking funding rounds. Notably, Jasper AI, an AI-powered copywriting platform, secured $125 million at a $1.5 billion valuation, while Anthropic received $450 million with backing from Google. Additionally, Inflection AI and Mistral AI raised $1.3 billion and $113 million, respectively.

PitchBook surveys revealed that a significant portion of VC investors had invested in AI and machine learning startups, underscoring AI's rapid transformation from a research field to a lucrative market. Despite the massive investments, concerns have been raised regarding the allocation of funds. Rather than focusing on research, development, and customer acquisition, many AI startups have directed substantial resources towards acquiring high-performance graphics processing units (GPUs) from companies like Nvidia and AMD. This has led to a severe GPU shortage, driving up costs and intensifying competition among AI startups for these critical components.

While some AI startups are genuinely focused on building core products, a considerable number are relying heavily on application programming interfaces (APIs) from platforms like OpenAI. Such dependencies raise questions about intellectual property ownership and control, as companies like Jasper AI utilize the OpenAI API for their services, rendering them vulnerable to the policies and decisions of API providers.Moreover, experts predict that the equilibrium between GPU supply and demand will not be restored until the end of 2024. This prolonged scarcity and the disproportionate emphasis on acquiring GPUs, rather than establishing a robust product moat, cast doubts on the sustainability and viability of some AI ventures.

As the AI industry faces the looming threat of a potential bubble burst, the future of AI large language models remains uncertain. While certain startups with solid products may thrive, others could encounter significant challenges due to their heavy reliance on GPUs and APIs. As investors navigate the AI space, it is crucial to carefully assess the long-term viability of these ventures and exercise caution amidst the uncertainties in the AI market.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.