Why Most AI Investors Will Lose Money

INVESTING

A few weeks ago, I gave you my reasons why I thought most AI startups were doomed. Today, with the excitement around AI startups continuing to grow, I want to take it a step further to see whether I was the one swimming naked. And as it turns out… no I wasn’t, because the picture is actually worse than I thought.

Most current AI software startups are bullshit, and most of them (and their investors) will lose a lot of money.

If not all.

And not because their products are bad, but because their business doesn’t make any sense and will never be profitable. Most venture capitalists are high on early successes and incapable of seeing how a train is about to steamroll their investment. And that train is not OpenAI. It’s called stagnant growth and low margins.

However, to understand why this is the case, we need to look at the AI industry as a whole.

Therefore:

We will take a close look at Coreweave after its IPO to explain why a company that shouldn’t exist does. Understanding this will make several key aspects of what makes AI infrastructure different very apparent and how even at this layer, most companies are still not going to make it. With a simple risk management and TCO framework, you will be able to easily tell for yourself who’s doomed.

We will then dissect the infrastructure business, understanding how customer dynamics completely change in the GPU cloud era, which will explain why most billion-dollar-backed startups with $100 million in annual recurring revenue (ARR) will still fail and never make profit, despite early success.

And, finally, we will take a look at AI software and, well, I really don’t have a different way to put it, but quoting Steve Carell in The Big Short, “call bullshit on every fucking thing.”

Let’s dive in.

The Company That Shouldn’t Exist.

I firmly believe that if you understand CoreWeave’s business, you already understand the AI industry better than most VCs.

So, what is Coreweave?

CoreWeave, the latest AI company to IPO (or, dare I say, the only one so far), is a company that builds, manages, and rents accelerated-hardware data centers for others.

Accelerated hardware is any hardware that parallelizes compute to increase throughput. GPUs, TPUs, NPUs, LPUs, WSEs… all fall in this category. As AI requires performing a lot of computations per second, these pieces of hardware are the only option.

Originally an Ethereum mining company, they executed a perfect pivot with the Generative AI craze and, since then, have become a go-to provider of data center buildout and management for various key customers like NVIDIA, Microsoft, or OpenAI.

From blockchains to AI? How?

Although that is no longer the case, there was a time when Ethereum behaved like Bitcoin. By behave, I mean that it was a ‘mining’ blockchain.

Miners compete to solve a very complex mathematical problem, and the one that solves it gets to add the next block to the blockchain, receiving…

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