OpenAI, a leader in artificial intelligence, has raised over $168 billion from investors, but the lack of a profitable business model is prompting major tech investors like Nvidia and Microsoft to slow their funding. Nvidia CEO Jensen Huang announced that the company is set to invest another $30 billion into OpenAI but stated it "might be the last time" it invests in the Sam Altman-led AI giant until it goes public. Separately, Huang clarified that a previously touted $100 billion investment in infrastructure is "not in the cards."

Aleksandar Tomic, associate dean for strategy, innovation and technology at Boston College, warned that the $30 billion investment represents a significant risk, equating to about an eighth of Nvidia's annual revenue. Despite Nvidia's latest quarterly earnings beating forecasts with revenue topping $68 billion, up 73% year-over-year, its stock tumbled more than 9% as investors grow wary of whether massive investments in AI companies like OpenAI—currently valued at $730 billion—will pay off. Tomic highlighted the difficulty in valuing AI ventures and the uncertainty around monetization strategies.

Microsoft's stock faced a similar downturn: in January, the tech giant reported a slowdown in growth for its cloud computing product Azure, with capital expenditures surging 66% compared to the previous year. Microsoft's stock dropped 11% following the earnings report and is down 18% year-to-date. Financial analyst George Noble noted in a post on X that OpenAI needs to generate $200 billion in annual revenue by 2030 to justify projections, requiring 15-fold growth in five years amid exploding costs.

OpenAI is also grappling with lawsuits, including one in New York alleging copyright infringement by ChatGPT-generated text and another in Colorado claiming ChatGPT acted as a "suicide coach." Despite these challenges, investors continue to pour money into the company due to fear of missing out, as Tomic argues, comparing the situation to the dot-com bubble era.

Sebastian Mallaby, a senior fellow at the Council on Foreign Relations, warned that OpenAI requires substantial investment to reach profitability and could run out of money within 18 months. The company carries roughly $100 billion in debt and needs "an insane amount of money" for data center infrastructure. If OpenAI fails, Microsoft and Nvidia might take a hit, but their diversified portfolios likely mitigate significant damage, according to analysts.

Tomic suggested an industry-wide bubble is looming, drawing parallels to the late 1990s dot-com bubble, with circular deals like Nvidia investing in OpenAI while OpenAI commits to buying Nvidia chips. A poll at the Yale Chief Executive Leadership Institute found that 40% of executives believe overhyped AI sector will lead to a market correction. OpenAI did not respond to requests for comment on this story.

Source: www.aljazeera.com