Early OpenAI Investor: Most AI Firms Won’t Make Money

OpenAI is an artificial intelligence (AI) success story.

But one of its early investors says it is the exception in an overvalued sector, not the rule, according to a Sunday (Oct. 29) Financial Times report.

Speaking to the newspaper at a recent tech conference, Vinod Khosla said the investing frenzy that has followed the launch of OpenAI’s ChatGPT may not translate into similar successes.

“Most investments in AI today, venture investments, will lose money,” Khosla said, drawing a parallel between this year’s AI hype and last year’s flurry of cryptocurrency investment activity.

A number of later entrants are “investing because everybody else is investing, that is what’s happening in AI,” he said.

Khosla’s Khosla Ventures invested $50 million in OpenAI in early 2019 in a round that valued the startup at $1 billion, the FT said, citing sources with knowledge of that investment. The company is now seeking a valuation of around $86 billion.

The FT, citing PitchBook data, said venture capitalists have invested $21.5 billion into AI companies this year, compared with $5.1 billion in all of 2022.

Many investors hope that their bets on highly valued companies will pay off because others will put in money later at an even higher valuation — a phenomenon that Khosla described as the “greater fool theory.”

Still, Khosla told the FT he remains confident AI has the potential to make dramatic changes, taking on 80% of the workload of 80% of all jobs in the next two decades.

Khosla’s comments echo those of Yanev Suissa, founder of venture capital firm SineWave Ventures, who told Seeking Alpha earlier this month that he predicted the AI bubble will soon burst, though the technology will remain present and worthwhile.

“AI is the next revolution in tech, but it’s also been around forever,” Suissa said. “It’s one of those things that’s going to pop and it’ll be a huge pop. And then it’ll sort itself out, right?”

Meanwhile, PYMNTS wrote recently that AI is “entering the end of its first full year of commercialization without having cracked the profitability nut.”

The high cost of AI, driven primarily by the computing power an AI model requires — which grows as the number of customers using the product increases — “is an uncomfortable and expensive reality” that businesses need to adapt to stay competitive, the report said.