Apple did something similar with NAND storage for the iPad mini. They took a bet that could have been wrong. It was not wrong. Competitors had a hard time because of it.
It's not binary where you either have compute or not. You definitely do need GPUs, but there's already masses of compute, I believe it doubles every ten months or so just from Nvidia's chips. Many factors make it a very irrational decision
1) Companies were spending hundreds of billions collectively on AI capex. Meta alone was 75 billion projected this year. This is an extraordinary bet, given that the most revenue any AI company makes is a few billion by OpenAI.
2) When DS came out, it was a huge validation of the moatless idea. These SOTA companies have no moat, at best they are spending tens of billions to maintain a few months edge.
3) DS was also a huge validation of the compute saturation idea - that SOTA models were always massively efficient. At best it was traded for iteration speed.
4) Many other more technical arguments - Jevons paradox, data exhaustion (synthetic data can only be generated for a fixed set of things), apparent diminishing returns (performance relative to compute, the denominator has been exponential but the numerator logarithmic)
So on one hand you have these SOTA models which are becoming free. On the other hand you have this terrible business model. I strongly suspect that AI will go the way of Meta's Metaverse - a staggering cash burn with no realistic path to profitability.
It's one thing to invest in a new technology with tangible benefits to your product. It's another to spend vastly, vastly more into vague promises of AGI. To put it into perspective, Meta will spend on AI capex in a few months of 2025 as much as Apple spent on NAND in total. What advantage is there to be had with SOTA models? You do 20% better on some AIME/IQ/competitive coding benchmark, which still translates atrociously to real world issues.
But Nvidia will be very successful because these companies frankly have lost a lot of the plot and are FOMOing like mad. I still have memories of the 2013 AI gold rush where every tech company was grabbing anything with AI in them, which is how Google got DeepMind. They are being enormously rewarded by it by the stock market with Meta's price 6x since it's lows.
I can think of a million different software services that have some value to users, but don't have some multi-trillion dollar revenue stream flowing from them.
There is an idea that these LLM companies are going to be able to insert their agents into the labour market and capture some percentage of the savings that firms realize from laying off their human workforce. Given the competitive environment, it is far more likely that these LLMs become an undifferentiated commodity good, and their value to the economy gets captured elsewhere. Currently the only value being captured is at the infrastructure level, and that is all predicated on a series of assumptions around software business models that have not materialized yet.
