We Need To Talk About This

I recently advised JPMorgan on their latest Eye on the Market research report. The resulting report is genuinely incredible and full of insights from one of the most well-respected investors in America, Chairman of Markets Michael Cembalest, and worth reading well beyond the AI section (section five), the one I humbly helped Michael with. This wasn’t the first time, but it still feels hard to believe seeing the ideas I expose in this newsletter being now read by millions. The report is free to download here.

THEWHITEBOX

Why the Future of AI is Concerning

The current belief is that the AI industry has finally cracked the revenue code, and the unprecedented growth companies like Anthropic or OpenAI are experiencing will continue for years. The growth rate is so impressive that if it sustains for just one more year, Anthropic will have a $1 trillion annual revenue run rate by the end of 2027.

And while that won’t happen, it’s not crazy to believe that Anthropic will reach a $100 billion/year run rate by the end of 2026, around double today’s value, and on track to represent a 10-fold increase for the year, an unheard-of growth rate at such values.

However, I fear all this might be a temporary illusion, which will lead to a much greater need for liquidity or… else.

And this liquidity will come from where? From a place most people don’t expect, and the answer is going to make you feel very nervous about the future of AI and the global economy.

Let’s dive in to understand why.

Unprecedented is the word.

The growth of AI labs is historically unusual because the leading companies are scaling from research organizations into cloud-scale revenue machines in only a few years.

As you can see below, OpenAI and Anthropic reached $1 billion in revenue much faster than all other tech companies in history.

Source: Author

Moreover, the growth rate is even more impressive the higher they go, as not only were they the first to reach $1 billion, but the gap widens with each subsequent milestone. OpenAI/Anthropic reached a $20 billion run rate almost two decades faster than Netflix.

Source: Author

The catalyst, the key product, has been coding agents: AIs that are used to write code. One could argue it is the product right now, and most other Generative AI use cases, with the exception of search, are mere satellites compared to this giant planet.

But the product itself isn’t the only star of the show explaining the huge revenue growth. And it’s precisely these unacknowledged ‘stars’, the ones that investors conveniently ignore, that are the problem.

Subsidies and Narrative

On the one hand, as any start-up trying to grow at all costs would, these companies have happily traded unprofitability for rapid growth, sacrificing the bottom line (profits) to boost the top line (revenue).

They are doing this by offering these products at massive discounts relative to the actual prices required to make money.

In other words, they are…

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