Is the AI Bubble About to Burst?

K. C. Sabreena Basheer 08 Aug, 2023 • 3 min read

The world of artificial intelligence (AI) experienced a massive surge in interest from venture capitalists (VCs) after the cryptocurrency boom of 2021. However, as the focus shifted from crypto to AI, concerns arose about the sustainability of the AI craze. Signs of potential weaknesses are surfacing, indicating that the AI mania might be approaching an end. This article delves into the current state of the AI market, the excessive reliance on GPUs, the lack of intellectual property, and the signs of market saturation that could lead to a potential AI bubble burst.

Also Read: China’s Billion-Dollar Bet: Baidu’s $145M AI Fund Signals a New Era of AI Self-Reliance

Venture capitalists are massively investing in AI development over cryptocurrency, creating a bubble.

AI Overtakes Crypto in VC Interest

Following the crypto downturn in 2022, VCs sought a haven and found it in artificial intelligence. ChatGPT, launched by OpenAI in late 2022, marked the beginning of AI’s dominance in the VC market. This breakthrough led tech giants like Google, Microsoft, and Facebook to jump into the AI frenzy, further fueling the growth of AI startups.

Also Read: KPMG Bets Over $2 Billion to AI Aiming for $12 Billion Revenue

The AI Funding Frenzy: Millions Poured into Startups

AI startups gained massive funding with jaw-dropping investment rounds. Jasper AI, Anthropic, and Inflection AI are just a few examples that raised billions of dollars in capital. The PitchBook survey revealed that the AI market quickly transformed from a dormant research field to a lucrative playground for investors.

Also Read: AWS and Accel Launch “ML Elevate 2023” to Empower India’s AI Startup Ecosystem

Venture capitalists are massively investing in AI, after the cryptocurrency bubble.

The GPU Shortage: Chasing High-Performing Hardware

Despite the impressive investments, AI startups face a significant challenge—the critical GPU shortage. Most of the raised funds are diverted to acquire high-performing GPUs from companies like Nvidia and AMD. This fierce competition is exacerbating supply chain issues, leading to concerns about the long-term feasibility of such spending.

Also Read: China’s Hidden Market for Powerful Nvidia AI Chips

Growing VC investments in AI development is leading to a GPU shortage.

The Lurking Lack of Intellectual Property (IP)

Many AI platforms heavily rely on APIs from established players like OpenAI, leaving them with little to no control or ownership of intellectual property. As demand wanes, startups like Jasper AI face layoffs, further highlighting the vulnerability of businesses without a robust product moat.

Signs of Market Saturation and Declining Performance

Market saturation is becoming evident as interest in AI chatbots like ChatGPT, Bard, and Bing declines for the first time. Reports of increased inaccuracies in GPT-4‘s performance raise concerns about the sustainability of the AI bubble. Stanford’s study revealing a decline in GPT-3.5 and GPT-4’s performance over time indicates a potential turning point.

Also Read: Government Intervention in Chip Design: A Boon or Bane for India’s Semiconductor Ambitions?

Our Say

While AI has undeniably revolutionized various industries and sparked enthusiasm among investors, signs of market saturation and reliance on external APIs raise concerns about an AI bubble. The excessive demand for GPUs and declining performance in AI models add further weight to the bubble. The AI mania might be on the verge of facing a reality check as industry reports or potential bankruptcies could lead to a burst. As we await the future of AI, investors and developers must keep a close eye on the market to navigate the challenges ahead and identify sustainable opportunities.

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