{"id":547688,"date":"2025-11-04T04:21:19","date_gmt":"2025-11-04T04:21:19","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/547688\/"},"modified":"2025-11-04T04:21:19","modified_gmt":"2025-11-04T04:21:19","slug":"the-ai-industry-is-running-on-fomo","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/547688\/","title":{"rendered":"The AI industry is running on FOMO"},"content":{"rendered":"

For Big Tech, a penny invested in AI is a penny earned… Maybe. After an indeterminate amount of time. Investors hope.<\/p>\n

On earnings calls last week, <\/strong>Amazon, Google, Microsoft, and Meta reported more than $350 billion this year on capital expenditures, <\/strong>or longer-tail investments in a company\u2019s future. All four told investors to expect the number to skyrocket even further next year: Microsoft said \u201chigher,\u201d Amazon an \u201cincrease,\u201d Google a \u201csignificant increase,\u201d and Meta \u201cnotably larger.\u201d<\/p>\n

That probably translates to more than $400 billion total for the four companies next year, according to Joe Fath, partner and head of growth at Eclipse VC.<\/p>\n

The return on investments for these companies so far is opaque. Dedicated AI companies are burning through cash in the meantime: OpenAI reportedly hit $12 billion<\/a> in annualized revenue this summer \u2014 while reportedly being on track to burn through $115 billion<\/a> through 2029.<\/p>\n

Tension over this mismatch, Fath said, is ratcheting up. There\u2019s a \u201cpush and pull between those companies and investors,\u201d he added. \u201cInvestors are saying, \u2018Am I going to get a return on this spend?\u2019\u201d It\u2019s one of the increasingly clear indicators that some parts of the AI industry are a bubble \u2014 but it doesn\u2019t yet tell us what happens after it pops.<\/p>\n

AI hype has remained extremely high for several years, and startup valuations have hit eye-popping numbers. OpenAI, for instance, is reportedly<\/a> hoping for a $1 trillion IPO in 2026 or 2027 and planning to raise $60 billion or more.<\/p>\n

But AI companies insist there\u2019s still not enough money for chips, data centers, and other resources. In a Q&A with reporters at OpenAI\u2019s annual DevDay event last month, executives repeatedly emphasized<\/a> their concern over lack of compute to expand services like Sora\u2019s video-generation AI and ChatGPT\u2019s daily Pulse feature, and discussed the need to eventually turn a profit from such services. Amazon, Google, and Microsoft \u2014 which provide cloud services on a quickly growing scale \u2014 have \u201call called out being pretty capacity-constrained,\u201d Molly Alter, a partner at Northzone VC, told The Verge.<\/p>\n

If these claims are accurate, they indicate that simply coming up with good products won\u2019t be enough to make AI companies profitable \u2014 because they can\u2019t afford to scale those products to support a huge user base. Even if they\u2019re exaggerated, the systems are incredibly costly to operate. OpenAI is still thought to be losing money<\/a> on even the $200 monthly subscription tier of its ChatGPT service, thanks to the cost of running queries.<\/p>\n

OpenAI\u2019s rumored IPO is a perfect example of the conundrum, Alter added. The company wants to secure about 26 gigawatts of computing capacity for data centers (which translates to about $1.5 trillion at current costs, per Alter) \u2014 meaning that even with the company\u2019s current revenue, an up to $100 billion investment from Nvidia, and other \u201ccircular deals,\u201d Alter says she still hasn\u2019t been able to understand how the company\u2019s clear funding gap gets solved.<\/p>\n

Some investors in the company are asking the same questions. Brad Gerstner, an OpenAI investor and CEO of Altimeter Capital, asked OpenAI CEO Sam Altman on his podcast<\/a> Friday about how a company with $13 billion in revenue can make $1.4 trillion in spending commitments.<\/p>\n

\u201cFirst of all, we\u2019re doing well more revenue than that; second of all, Brad, if you want to sell your shares, I\u2019ll find you a buyer,\u201d Altman replied. \u201cI just\u2026 Enough.\u201d<\/p>\n

In past quarters, Big Tech executives have presented customizable models and AI agents as a saving grace that will surely, eventually, turn a profit \u2014 reiterating that they need to spend money to make money<\/a>, including by cutting costs elsewhere and diverting the resources to AI.<\/p>\n

Now, though, agents from OpenAI, Google, and others are in users\u2019 hands. And though companies promise they\u2019ll steadily improve at automating \u201ctedious tasks,<\/a>\u201d in their current state, they\u2019re not taking the world by storm.<\/p>\n

Investors seemed concerned with the details of Meta\u2019s projected expansion, and their demands for specifics weren\u2019t always met with clear answers. \u201cThere are lots of moving pieces in the budget. It\u2019s not baked yet. It\u2019s still sort of in the process of coming together,\u201d responded CFO Susan Li to one question. \u201cWe don\u2019t have, you know, specific targets to share.\u201d<\/p>\n

Some investors seemed wary about whether there\u2019s a coherent plan at all. Meta made headlines in 2025 for spending billions to lure AI engineers and researchers away from competitors for its brand-new Superintelligence team, then announced internal restructuring and layoffs soon after. Meta\u2019s AI initiative comes on the heels of a quixotic quest for the virtual reality \u201cmetaverse,\u201d in which it\u2019s so far spent and lost<\/a> tens of billions through its Reality Labs division. \u201cI don\u2019t think they\u2019re getting any results there that would lead you to believe that that\u2019s good spend,\u201d Fath told The Verge, speaking about Reality Labs.<\/p>\n

Some of the same concerns were present on other company earnings calls, with investors asking about the AI industry\u2019s hype levels, capacity constraints, and feature adoption. On Microsoft\u2019s earnings call, one investor asked, \u201cFrankly, are we in a bubble?\u201d<\/p>\n

Even tech executives have admitted some aspects of the industry may be overblown. OpenAI\u2019s Altman told reporters last month that there are \u201cmany parts of AI that I think are kind of bubble-y right now.\u201d And on Microsoft\u2019s latest earnings call, CEO Satya Nadella told investors, \u201cI don\u2019t think AGI as defined, at least by us in our contract, is ever going to be achieved anytime soon.\u201d But bubbles are largely driven by sentiment and behavior, as well as fear of missing out and expertly marketed corporate narratives.<\/p>\n

If it is a bubble, the consensus seems to be that it\u2019s one that won\u2019t explode the industry; rather, it\u2019ll just lead to fewer players and more consolidation. Alter said the funding gaps within the industry keep her up at night, especially since a company\u2019s investment in its future growth has to ideally lead to, well, real growth and profit in the end. The companies that succeed may not be the most glamorous or consumer-facing \u2014 think coding agents, customer service AI, and potentially creative content generation, rather than solely AI social networks and all-purpose chatbots.<\/p>\n

But there\u2019s no fighting AI FOMO, and so any bubble-y parts of the industry have no sign of slowing down just yet \u2014 but Fath said he\u2019s watching for if or when OpenAI slows down for any reason, and the same goes for Nvidia\u2019s data center business.<\/p>\n

\u201cMy sense is, when a board is sitting there, they\u2019re asking the CEO, \u2018What are you doing about AI?\u2019\u201d Fath said. \u201cThat\u2019s the question they\u2019re getting. And they need to come in with an answer prepared to say how they\u2019re going to spend on that. And if the business starts to deteriorate, and they\u2019re not spending in AI, there\u2019s going to be a lot of criticism of those executives\u2026 even if we really don\u2019t know what the returns will look like right now.\u201d<\/p>\n

\u201cThis gets into that whole \u2018FOMO\u2019 that\u2019s building across industries and across companies to make sure that you\u2019re not on the wrong side of change.\u201d<\/p>\n

And if over-investing in AI becomes the wrong side of change? Well, at least everyone was doing it.<\/p>\n

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