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The Bottom Line
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Your essential guide to global business and technology
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The race for AI supremacy is just getting started | | |
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On a reporting trip through San Francisco, Silicon Valley and Seattle with one of my editors last week, both of us were struck by the rivalries—dare I say bitchiness—we encountered. In San Francisco, the two biggest generative-AI startups, OpenAI and Anthropic, are the product of a falling-out as bitter as that of Oasis’s Noel and Liam Gallagher (and with little prospect of a patch-up). In the north-west, there is no love lost between cloud providers Microsoft Azure, which runs OpenAI, and Amazon Web Services, which runs Anthropic. In Silicon Valley, venture capitalists resent the huge sums big-tech firms are throwing at the hottest AI startups. At the pinnacle is a looming personality clash: OpenAI’s Sam Altman against xAI’s Elon Musk.
This is not just gossip. It’s American capitalism at its best. These feuds are surface-level manifestations of a deep-rooted competitive drive that is set to propel generative AI to the next level, as
our cover leader this week
argues. On our first day, we visited Nvidia, which looks like it has the race to provide accelerator chips for generative AI sewn up. That evening, we turned up at OpenAI, which appears to be on the verge of raising $6.5bn from investors at a valuation of $150bn,
making it AI’s first “hectocorn”.
Both firms have a strong headstart in their particular fields (and surprisingly soothing, though not complacent, office vibes). Yet our subsequent conversations with cloud-service providers, tech giants, venture capitalists, antitrust experts and academics convinced us that the race is only just getting started. It will be a marathon, not a sprint.
Part of that is because of the
technological challenges that lie ahead.
In the last few years, large language models, such as the one behind ChatGPT, have become better thanks to rapid growth in the computing power and data thrown at them. In other words, moolah (by one estimate, the cost of training the best models has risen from $10m to $100m in two years). But to go further requires subtler techniques such as reinforcement learning and better algorithms. Money will help here, too, but so will human ingenuity. Other physical constraints need to be overcome, such as energy, cooling systems and data-centre design.
Then there is the business-model puzzle: how do you make generative AI profitable? Companies will quickly need to produce revenues to offset the cost of training and using the models. Yet two of the revenue-generating fallbacks of the internet era, digital advertising and online subscriptions, cannot be cut and pasted onto the generative-AI one. Imagine how creepy it would sound if advertising were crudely incorporated into an oral back-and-forth with an AI agent. And in the workplace, the old subscription model of charging per user per month will become less sustainable if AI agents start to replace those users.
Everyone involved knows one thing for sure: large language models must become cheaper in order for generative AI to flourish. That is why cloud providers like Amazon, Microsoft and Google are competing fiercely to offer a variety of services whose size and price vary depending on the complexity of the task at hand. It is why firms dependent on Nvidia’s chips are making their own semiconductors—or looking for alternative suppliers—to bring costs down. It is why the likes of Elon Musk and Mark Zuckerberg are betting big on the belief that they can undercut OpenAI.
This bustling competition to lower costs explains why VC firms are throwing big bucks at startups that aim to build businesses out of the fruits of the labour of OpenAI and its rivals. They know clever entrepreneurs will eventually find a way to make generative AI profitable. If you think they are barmy, and that I’ve fallen victim to the generative-AI hype, drop me a line explaining why. If you agree that this is American capitalism at its best, savour the thought. You can reach us at:
thebottomline@economist.com.
If you are an aspiring business, finance or economics writer, and would like to work for The Economist, we are inviting applications for our 2024-25 Marjorie Deane internships. Find out more
here.
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Fast fact: The average size of a VC fund raised in America last year was about $150m. OpenAI is looking to collect more than 40 times that in a single transaction. | | |
Your preview of next week | | |
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Monday September 23rd
Markets will take note of September’s purchasing-managers indices for America, Britain and Germany. S&P Global’s manufacturing PMIs for America and Germany recorded month-on-month declines in August, but Britain notched up its fourth consecutive month of increased factory activity.
Tuesday September 24th
Bernie Sanders has Novo Nordisk in his sights for what he claims are the “outrageous costs” it charges for Ozempic and Wegovy. The Senate committee on health that he chairs holds a hearing.
The Reserve Bank of Australia makes a decision on interest rates. The central bank has so far resisted calls from businesses to reduce its benchmark rate, which is 4.35%. The minutes of its previous meeting suggest a cut is some way off.
Raspberry Pi publishes its first results since completing a successful IPO in June. The British maker of cheap single-board computers couldn’t escape August’s market turmoil in tech shares, however, from which its stock is yet to recover.
Wednesday September 25th
Meta holds its Connect conference on “the technologies of the future”. Mark Zuckerberg will give a keynote speech on artificial intelligence and the metaverse (but probably avoid mentioning the huge losses at Meta’s Reality Labs). He may also debut Meta’s much-anticipated Orion augmented-reality glasses.
Micron’s share price slumped recently when a market analyst suggested its stock would perform less well than competitors that also supply AI chips. The company announces its earnings. Its previous results disappointed investors, who want to see higher returns from AI-related products.
Sales of new homes in America surged by 10.6% in July over June at an annualised rate, in part because mortgage rates have pulled back from recent highs. It is unlikely that a surge of that magnitude will be repeated in August’s new-home figures, as the data are notoriously volatile. The S&P Case-Shiller home-price index is updated on September 24th.
Thursday September 26th
The latest results from H&M, the world’s second-biggest listed fashion retailer, are expected to reflect a sharp fall in sales for June, because of “unstable” weather in many of its key markets.
Around a third of Americans shop at Costco, up from a quarter in 2019. The warehouse retailer, which reports its earnings, has benefited from the mania for stockpiling non-perishable foods. Half of the population now does so, double the share from before the pandemic. Costco’s sales are booming, rising by 7% in August, year on year.
Jittery shareholders in Diageo might be in need of a stiff one at the drinks company’s annual general meeting. In July Diageo reported its first 12-month drop in sales for four years. The owner of Smirnoff vodka, Johnnie Walker whiskey and Baileys cream liqueur said the volume of drinks it sold declined by 5% over the 12 months, in a “challenging” consumer market.
Friday September 27th
France and Spain release inflation data for September. In France the annual rate fell to 1.8% in August, the lowest since July 2021. Spain’s rate declined substantially, to 2.3%. As recently as May it was running at 3.6%. | | |
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Kindness is in the air. Publishers produce business books with titles like “The Power of Nice” or, simply, “Kind”. LinkedIn, which is ostensibly a networking site for career-minded professionals, is overrun with sickly videos showing people being improbably generous to the homeless. Firms publicly embrace the values of compassion: one manufacturer of safety-gear talks of “offering grace internally”, which sounds terribly intrusive. | | | |
Our latest stories on business and technology | | |
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