AI Firms Rake in Billions Without Having Products

AI may represent a “field of dreams,” but investors are reportedly seeing a potential nightmare.

As The Wall Street Journal (WSJ) reported Monday (April 29), startups in the artificial intelligence (AI) space continue to take in billions of dollars in investments, although many of those businesses have yet to produce a viable product. This has led to concerns about a bubble as companies try to generate revenue beyond AI hype.

The report cites figures from venture firm Sequoia Capital, which at its AI summit last month estimated that it had invested $50 billion into the chips needed to train language models, while revenues from generative AI startups came to $3 billion.

“Everybody’s assuming: if you build it, they will come. AI is a field of dreams,” Sonya Huang, a Sequoia partner, said at the event. “The amount of money it takes to build this stuff has vastly exceeded the amount of money coming out so far. So we’ve got some real problems to fix.”

Last year, the report says, investors funneled $21.8 billion into generative AI companies, a fivefold increase from 2022, in hopes of discovering the next ChatGPT. But so far, few other startups have been able to recapture OpenAI’s success.

The WSJ gives the example of Inflection AI, which raised $1.5 billion to develop the language models behind its main product, a chatbot called Pi that provided emotional support to users.

However, the report says, the company couldn’t find a working business model, with its former CEO Mustafa Suleyman and much of the staff recently jumping ship to join Microsoft.

The rush to fund AI projects is happening among Big Tech companies as well, with Meta recently announcing it would spend $35 billion on the technology this year.

“This colossal investment raises pivotal questions about the future of AI development and its financial viability,” PYMNTS wrote last week. “Industry experts are now debating the scope and impact of this funding, probing into when these investments will yield a return on investment (ROI) and how they could reshape Big Tech revenue models.”

With strategies ranging from ads to subscriptions, the Facebook owner’s move could bring about new blueprints for how tech giants capitalize on advances in AI.

“For now, there seems to be no end in sight to the arms race,” Muddu Sudhakar, CEO of generative AI company Aisera, told PYMNTS. “AI is clearly a top strategic focus. Think of it like the transition from on-prem to the cloud or from the desktop to mobile. These are massive secular trends that last many years. So, for a megatech company like Microsoft, Google, Meta or Amazon, missing out on AI would be disastrous. This is why they are pouring billions of dollars into capex.”

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