The AI industry must generate around $600 billion in profit to align with current expenditures. As companies chase the elusive AGI, the future of AI investments hinges on groundbreaking advancements and sustainable revenue streams.

Artificial intelligence (AI) companies are facing a significant financial challenge. According to Sequoia Capital, the industry needs to generate about $600 billion in profit before current expenditures start to make sense. This immense profit gap underscores the pressure on AI firms to deliver on their ambitious promises, particularly the development of artificial general intelligence (AGI).


The Promise and Perils of AGI

AGI refers to machines capable of human-level or greater reasoning, and while the concept has captured the imagination of the tech world, there is still no scientific evidence that AGI is achievable. This has not deterred significant investment in the AI sector, with companies like OpenAI leading the charge.


A Market Driven by Anticipation

The current AI market is largely anticipatory. OpenAI stands out as one of the few highly profitable generative AI enterprises, with revenue around $3.4 billion, according to The Information. The gap between OpenAI and its nearest competitors is substantial, highlighting a capital shortfall of approximately $600 billion, as per Sequoia Capital's analysis.


Sequoia's estimates are based on Nvidia GPU usage, suggesting the actual global industry expenditures might be even higher. This implies AI companies need to generate over half a trillion dollars in revenue to justify current spending, a figure expected to grow annually.


The Product Question

Despite the surge in investor interest and corporate investments driving the market to new highs, including Nvidia's brief tenure as the world's most valuable company by market cap, the critical question remains: where are the AI products or services that will sustain this level of growth?


So far, generative AI has struggled to find a use case that leads to exponentially expanding profits. ChatGPT, while impressive, isn't expected to become a mainstream profit juggernaut anytime soon. Achieving the $600 billion revenue target could take decades if current trends persist, with OpenAI's 10-digit profit margin carrying much of the market's weight.


The AGI or Bust Era

This scenario suggests that the AI market might soon enter an "AGI or bust" phase, where the future of companies like OpenAI and Anthropic hinges on their ability to develop machines with human-like reasoning. If these companies can't meet revenue expectations, the industry could face a significant financial setback, widening the $600 billion gap to a potentially unmanageable extent.


Nvidia's Role and the Path Forward

However, there's a silver lining. The AI industry's viability could be bolstered by advancements in hardware. Nvidia is preparing to launch its new Blackwell-based chipset, the B100, designed for training generative AI. The B100 is expected to outperform the current H100 model by 2.5 times and will cost only 25% more.


If achieving AGI was considered possible with previous hardware, the enhanced capabilities of the B100 could accelerate progress towards this goal. Nvidia's advancements could provide the necessary boost to bridge the gap between current investments and future profits.


The AI industry is at a crossroads. With a $600 billion profit gap to close, the pressure is on to deliver groundbreaking advancements in AI technology, particularly AGI. The upcoming launch of Nvidia's B100 chipset offers hope, promising significant improvements in training generative AI models.


For investors, companies, and AI enthusiasts, the next few years will be critical. The success or failure of these efforts will determine whether the industry can justify its current expenditures and continue to grow or face a significant financial reckoning. Stay tuned to OMGfin for the latest developments in this evolving story.


(TRISTAN GREENE, COINTELEGRAPH, 2024)