AI Industry in Bubble? Sequoia Analyst Warns of High Costs and Revenue Gap

TapTechNews July 6th news, the analyst David Cahn of Sequoia Capital released a report, believing that the AI industry is in a bubble. An annual output value of more than 600 billion US dollars is needed to pay for the expenses of AI infrastructure such as data centers and accelerated GPU cards.

Nvidia's data center hardware revenue reached 47.5 billion US dollars in 2023 (most of the hardware is computing GPUs used for AI and HPC applications).

In addition, companies such as AWS, Google, Meta, and Microsoft also invested heavily in AI in 2023, and Cahn believes that these investments are difficult to recoup in the short term.

Cahn just roughly estimated the operating cost of AI. First, double the run-rate revenue prediction of Nvidia to calculate the total cost of paying for the AI data center (GPUs account for half, and the other half is energy, buildings, and backup generators).

Then multiply this value by 2 to represent the end-user payment, such as startups or enterprises purchasing AI computing from companies such as AWS and Microsoft Azure.

According to the analyst, the revenue of OpenAI using Microsoft Azure infrastructure has increased significantly, from 1.6 billion US dollars at the end of 2023 to 3.4 billion US dollars in 2024. This growth demonstrates OpenAI's dominant position in the market, far exceeding that of other startups that are still struggling to reach the 100-million-dollar revenue mark.

The analyst ultimately believes that AI companies have to earn 600 billion US dollars (TapTechNews note: currently about 4.37 trillion Chinese yuan) annually to pay for a large amount of hardware expenses. The analyst believes that the annual revenue of Google, Microsoft, Apple, and Meta is about 10 billion US dollars each, while the annual revenue of other companies such as Oracle, ByteDance, Alibaba, Tencent, X, and Tesla is 5 billion US dollars, but there is still a gap of 500 billion US dollars, believing that the bubble in the iAI industry is intensifying.

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