The Telegraph - Andrew Orlowski - The world cannot afford an AI bubble right now- Anthropic is like if the Heaven’s Gate UFO cult went into business
Even by the eccentric norms of Silicon Valley, Anthropic is a very strange company indeed.
One of its seven founders has been camping out at the Vatican, hoping to persuade the Pope that its software is conscious.
It wants to put in place protections for the “welfare” of chatbots, a step towards legal personhood. Anthropic is also a noisy promoter of the idea that the End is Nigh, brought about by a killer superintelligent AI.
It’s like the Heaven’s Gate UFO cult went into business. And when the going gets weird, to misquote Hunter S Thompson, the weird IPO.
While arch-rival OpenAI, from which Anthropic broke away, has postponed its public flotation, Anthropic is racing towards one, in what could be the biggest share offer in history. Parts of its prospectus leaked last week.
The question here is not whether people find AI useful, or even whether Anthropic has created some real business, which it has.
The problem is whether it is a business that’s worth $2tn (£1.5tn), Anthropic’s modest valuation of itself, and whether it will go broke trying to get there.
AI is proving very expensive to operate. This is not a classic, low-marginal-cost software business, like a Microsoft or an Airbnb. Costs scale with users, and with more sophisticated jobs, the costs rise exponentially. Only in niches like software development can Anthropic control these costs.
In fact, AI can become ubiquitous in our economy without anyone making money from it directly at all, and this is the gamble China has made.
Anthropic vows to spend $518bn on infrastructure.
Ominously, 80pc of this is already tied up in non-cancellable contracts, which means it’s on the hook for over $400bn worth of deals that it can’t get out of.
In addition, almost half of Anthropic’s revenue is channelled through two rivals: Amazon and Google. They may have plans of their own, the prospectus admits, noting this “creates complex dynamics that could give rise to conflicts of interest and adversely affect our access to compute”.
They may do to Anthropic what Microsoft did to Netscape 30 years ago. By controlling the distribution channel, it made a free and quite reasonable alternative in front of consumers before they could see the Netscape product.
All this means that Anthropic not only needs overall demand for AI to rise, it must be able to capture much of that demand in the form of paying customers.
Today, however, features and innovations are rapidly copied within weeks. Free, open-weights models that don’t divulge your company secrets to OpenAI or Anthropic suddenly look much more attractive. As I noted recently, Anthropic could find itself in the position of selling mineral water at $1,000 a bottle, just as everyone is getting a household tap.
Dario Amodei’s gamble is to tie up the competition in red tape – or making open alternatives illegal to use – but so far this has not impressed Team Trump.
In fact, many key indicators are going the wrong way for Anthropic and OpenAI.
Spending on AI has actually declined every month since July, notes Ara Kharazian, the lead economist at payment processor Ramp.
Kharazian attributes this to intense pricing competition between OpenAI and Anthropic.
This indicates that demand and revenue are diverging: both companies would rather see wallets loosen, not tighten. Analysts at Gartner have estimated that businesses will bin 40pc of AI agents as firms hit problems; the AI is too unreliable and creates vast new areas of risk.
Bain & Company estimates that AI needs up to $6tn in revenue by 2031 to fund existing commitments to break even.
For the infrastructure build-out to pay off, the world needs to be spending 9pc of US annual GDP today on AI in 2030. Bain sees nothing on offer today that will entice paying customers to generate that level of demand. Squinting at it optimistically, it estimates the AI industry will be $4.2tn short of wiping its face.
At this point, we are entitled to ask whether a speculative bubble is what the world really needs right now. Populations are on the move. Income growth has flatlined for a generation. Having printed money to keep things ticking along, the central banks are out of options.
Much of the AI bubble today is financed by shadow banking, or private credit, which the Bank of England has warned about, and many of the financing deals are circular. The rising cost of securitising these vast infrastructure bets is another ominous sign.
The last thing business needs is for money to become scarcer and more expensive. In its annual report in June, the Bank for International Settlements (BIS) warned of the lasting damage to the global economy if the bubble implodes.
“A repricing of risk this time, whether triggered by higher interest rates or an AI bust, has the potential to be similarly disruptive by triggering a corporate credit freeze with wider implications for aggregate investment.”
That means bridges and hospitals don’t get built, and the real economy is starved of the capital it needs to invest.
The winter could be long and cold for everyone, and a precursor to political realignments we can’t even begin to imagine.