FameEX Hot Topics | The Frenzy of AI Mania Nears Its End

The first half of 2023 witnessed an astonishing influx of over $25 billion in funding for AI large language models (LLMs). This surge has positioned the AI industry as a dominant force in the venture capital (VC) market, replacing the once hot cryptocurrency sector. However, signs of weaknesses in the AI bubble are emerging, raising concerns that a burst may be imminent.

The rise of AI dominance in the VC market began with the launch of OpenAI's ChatGPT on November 30, 2022. Following a tumultuous year for the cryptocurrency industry in 2022, VCs were eager to seek alternative investment opportunities. ChatGPT's unprecedented demand, with a million users onboarded in just five days, opened the floodgates for tech giants like Microsoft, Google, and Facebook to jump into the AI space.

As tech behemoths competed to create their own AI language models, numerous smaller companies also emerged, seeking their share of the AI boom. VCs poured their funds into AI startups, leading to record-breaking funding rounds. For instance, Jasper AI, an AI-powered copywriting platform, raised $125 million at a $1.5 billion valuation. Anthropic secured $450 million with Google's backing, while Inflection AI and Mistral AI raised $1.3 billion and $113 million, respectively.

Surveys conducted by PitchBook revealed that a substantial portion of VC investors had invested in AI and machine learning startups, signifying the rapid transformation of AI from a research field to a lucrative market. Despite the massive investments, questions arise about the allocation of funds. Instead of focusing on research, development, and customer acquisition, AI startups have been heavily investing in acquiring high-performing graphics processing units (GPUs) from companies like Nvidia and AMD. This has led to a critical GPU shortage, making GPUs exorbitantly expensive and causing a fierce competition among AI startups to secure them.

While some AI startups are building core products, many are relying on APIs from platforms like OpenAI, raising concerns about intellectual property ownership and control. Companies like Jasper AI use the OpenAI API for their services, putting them at the mercy of API providers. Moreover, the GPU supply and demand equilibrium is predicted to be restored only by the end of 2024. The focus on acquiring GPUs rather than building a product moat raises doubts about the sustainability and viability of some AI ventures.

As the industry faces the risk of a bubble burst, the future of AI large language models remains uncertain. While some startups with solid products may thrive, others may face challenges due to their heavy reliance on GPUs and APIs. Investors must tread carefully in the AI space and evaluate the long-term viability of these ventures.

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