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Sam Altman’s Gamble: Will OpenAI’s Aspirations Match the Industry’s Growing Expenses?

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It’s a staggering $1.4 trillion (£1.1 trillion) dilemma. How can a startup like OpenAI, which is currently operating at a loss, afford such enormous expenses?

A positive answer to this question could significantly ease investor worries about potential bubble bursts in the burgeoning artificial intelligence sector, including the high valuations of tech companies and a global expenditure of $3 trillion on data centers.

The firms behind ChatGPT require extensive computing resources (or “compute”) to train their models, generate responses, and develop even more advanced systems going forward. OpenAI’s computing obligations (AI infrastructure such as chips and servers supporting its renowned chatbots) are projected to reach $1.4 trillion over the next eight years, overshadowing its annual revenue of $13 billion.


Recently, this disparity has appeared to be a significant concern, leading to market unease regarding AI expenditures and remarks from OpenAI leaders who have not sufficiently clarified these issues.

OpenAI CEO Sam Altman initially attempted to address the situation during a somewhat awkward discussion with Brad Gerstner of Altimeter Capital, the company’s leading investor, but concluded with Altman’s assertion that “enough is enough.”

On his podcast, Gerstner articulated that the company’s capacity to cover more than $1 trillion in computing expenses while yielding only $13 billion in annual revenue is an issue “plaguing the market.”

Altman countered by stating, “First of all, we’re generating more than that. Secondly, if you want to sell your stock, I can find you a buyer; I’ve had enough.”

Last week, OpenAI’s Chief Financial Officer Sarah Friar suggested that some of the chip expenses could be offset by the U.S. government.

“We’re exploring avenues where banks, private equity, and even governmental systems can help finance this,” she mentioned to the Wall Street Journal, noting that such assurances could significantly lower financing costs.

Was OpenAI, which recently declared itself a full-fledged for-profit entity valued at $500 billion, implying that AI companies should be regarded similarly to banks during the late 2000s? This led to a quick clarification from Friar, who denied on LinkedIn that OpenAI was seeking federal reassurance while Altman aimed to clarify his stance on X.

“We neither have nor want government guarantees for OpenAI data centers,” Altman wrote in an extensive post, adding that taxpayers shouldn’t be responsible for rescuing companies that make “poor business choices.” Perhaps, he suggested, the government should develop its own AI infrastructure and provide loan assurances to bolster chip manufacturing in the U.S.

Tech analyst Benedict Evans remarked that OpenAI is trying to compete with other major AI contenders supported by substantial existing profit models, including Meta, Google, and Microsoft, who are significant backers of OpenAI.

“OpenAI aims to match or surpass the infrastructure of dominant platform companies that have access to tens of billions to hundreds of billions of dollars in computing resources. However, they rely on cash flow from current operations to afford this, something OpenAI lacks, and they’re working to gain entry into that exclusive circle independently,” he noted.

Altman is confident that the projected $1.4 trillion can be offset by future demand for OpenAI products and ever-evolving models. Photo: Stephen Brashear/AP

There are also concerns surrounding the cyclical nature of some of OpenAI’s computing agreements. For instance, Oracle is set to invest $300 billion in developing new data centers for OpenAI across Texas, New Mexico, Michigan, and Wisconsin, with OpenAI expected to reimburse almost the same amount in fees for those centers. According to its agreement with Nvidia, a primary supplier of AI chips, OpenAI will purchase chips for cash, while Nvidia will invest in OpenAI as a non-controlling stakeholder.

Altman has also provided updates on revenue, stating that OpenAI anticipates exceeding $20 billion in annual revenue by the year’s end and reaching “hundreds of billions of dollars” by 2030.

He remarked: “Based on the trends we’re observing in AI utilization and the increasing demand for it, we believe that the risk of OpenAI lacking sufficient computing power is currently more pressing than the risk of having excess capacity.”

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In essence, OpenAI is confident that it can recover its $1.4 trillion investment through anticipated demand for its products and continually enhancing models.

The company boasts 800 million weekly users and 1 million business customers, deriving income from consumer ChatGPT subscriptions – which accounts for 75% of its earnings – in addition to offering enterprises a specific version of ChatGPT and allowing them to leverage its AI models for their own products.

A Silicon Valley investor, who has no financial ties to OpenAI, emphasizes that while the company has the potential for growth, its success hinges on various factors like model improvements, reducing operational costs, and minimizing the expenses of the chips powering these systems.

“We believe OpenAI can capitalize on its strong branding and ChatGPT’s popularity among consumers and businesses to create a suite of high-value, high-margin products. The crucial question is: how extensively can these products and revenue models be able to scale, and how effective will the models ultimately prove to be?”

However, OpenAI currently operates in the red. The company contends that figures regarding its losses are misrepresented, such as claims of an $8 billion loss in the first half of the year and about $12 billion in the third quarter, yet it does not dispute these losses or provide alternative figures.

Altman is optimistic that revenue may stem from multiple sources, including heightened interest in paid ChatGPT versions, other organizations utilizing their data centers, and users purchasing the hardware device being crafted in collaboration with iPhone designer Sir Jony Ive. He also asserts that “substantial value” will emerge from scientific advancements in AI.

Ultimately, OpenAI is banking on needing $1.4 trillion in computing resources, a figure far from its current income, because it is convinced that demand and enhancements to its product lineup will yield returns.

Karl Benedict Frey, author of “How Progress Ends” and an associate professor of AI at the University of Oxford, casts doubt on OpenAI’s aspirations, citing new concerns and evidence of a slowdown in AI adoption in the U.S. economy. Recently, the U.S. Census Bureau reported that companies with 250 or more employees have experienced a decline in AI adoption.

“Multiple indicators reveal that AI adoption has been decreasing in the U.S. since summer. While the underlying reasons remain unclear, this trend implies a shift where some users and businesses feel they aren’t receiving the anticipated value from AI thus far,” Frey stated, adding that achieving $100 billion in revenue by 2027 (as suggested by Altman) would be impossible without groundbreaking innovations from the company.

OpenAI claims that its enterprise ChatGPT version has grown ninefold year-over-year, accelerating business acceptance, with clientele spanning sectors, including banking, life sciences, and manufacturing.

Yet, Altman acknowledges that this venture might not be a guaranteed success.

“However, we could certainly be mistaken, and if that’s the case, the market will self-regulate, not the government.”

Source: www.theguardian.com

RFK Jr. criticizes FDA for banning alternative remedies and condemns drug industry’s influence

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In a speech aired on the Food and Drug Administration’s Maryland campus Friday morning, Robert F. Kennedy Jr. introduced himself as the country’s health secretary in a mean speech that touched on everything from the raptors of Lake Erie to the CIA.

Kennedy told agency staff in an effort to boldly avoid the impulse to protect the companies they regulate amid the pain of losing 20% ​​of the workforce under an overhaul of the health and human services sector.

Layoffs, voluntary departures and cuts in funding have already stopped the sectors controlling tobacco surveillance, drug approval processes, testing bird milk and bird flu cheeses, and food safety, which monitors and protects consumers from foodborne diseases.

In his remarks Friday, Kennedy suggested that the agency did not approve “alternative drugs” because of its subordination to wealthy businesses. Agent veterans argue that alternative products often fail to pass safety and efficacy standards.

He previously accused the FDA of suppressing raw milk, ivermectin and stem cell therapy.

He urged staff to resist the temptation to serve small groups of wealthy businesses at the expense of public health.

“We want to break away from it so that we can make our children healthy,” he said, according to a transcript of the speech shared with the New York Times. At another point, he said, “The deep nation is the real thing.” This is a light-journal reference to the vast federal bureaucracy that President Trump accused of as an obstacle to achieving his goals in his first term.

Department of Health and Human Services spokesman Andrew Nixon did not immediately respond to requests for comment on Kennedy’s remarks.

Kennedy also calls the FDA “sock dolls.” He used it in the past. Dynamics rewards “a very powerful incumbent in the industry,” he said at another time.

Drugmakers have benefited from a series of efforts by the FDA to speed up specific drug approvals and encourage businesses to develop drugs for serious illnesses that lack treatment. An FDA official said the program is intended to help patients.

The FDA has faced criticism over the past few years for several well-known drug approvals. For example, when granting approval for Alzheimer’s and Duchenne muscular dystrophy products, the top officials rejected the agency’s scientist or advisor.

Kennedy urged FDA employees to speak up if their boss greenlights products with insufficient evidence. “If your boss is making a mistake, if they approve something that shouldn’t be approved, we want to hear,” he said.

New FDA committee member Dr. Marty McCurry introduced Kennedy at a meeting Friday, supporting the goal of shaping healthier food supplies. He admitted that for some staff, cutting at the agency is “struggling with the ground.” He said the change was “to be integrated, more efficient and create more teamwork.”

Kennedy and Dr. McCurry were broadcast on video that aired on the agency White Oak campus outside Maryland.

Kennedy visited her father, Attorney General Robert F. Kennedy, at Washington’s Department of Justice, and recalls her child watching the Peregrine Falcons nest in the cupola of an old post office building. He also discussed his experiences at the Special Olympics, where he played the role of “Hugger” and coaching, playing the battles he played as an environmental lawyer.

Kennedy also complained about the rules governing the agency’s food department, which allow businesses to recognize that they can generally be recognized as being safe. This scale initially covered ingredients such as salt and vinegar to be acceptable in food without review. However, since then, thousands of ingredients have been added to the food supply without notice or testing by agents.

Food companies must provide a review of the materials to the FDA inspector on the premises, but such inspections can be performed once every five years. Kennedy is calling for an end to allow food companies to self-certify that the ingredients are safe.

“We literally don’t test chemicals before they’re added to food,” he said, according to the transcript. “Everything is engraved by the industry, as is generally perceived as safe.”

He went on to attribute the country’s diabetes rate to a loophole, adding that sugar also plays a role.

The speech was reminiscent of a social media message Kennedy posted in October, accusing the FDA of “a war with public health.” He said he is engaged in a “active suppression” of a series of unproven or unsafe products, including raw milk, chelate compounds, ivermectin, and “others that advance human health and cannot be patented by pharma.”

Here’s the post: “If you’re working for the FDA and are part of this corrupt system, you have two messages.

The agency is still shaking from thousands of job openings and voluntary deviations in the weeks since Kennedy was appointed health secretary. FDA employees who left in recent weeks include staff looking for drugs for byproducts that could cause cancer, and others working with international food safety staff to stop contaminated products from entering the United States.

The cuts in some regions are so deep that former FDA officials have suggested that the pharmaceutical industry could endanger billions of dollars to pay agents to ensure that the drug approval process is properly staffed.

Drugmakers are worried about what Kennedy’s leadership means for their benefit. They are worried that agency cuts will slow down drug reviews, including starting clinical trials, and will add a delay to final approval.

Public letter Dozens of biotech investors and executives have signed the signing, and industry leaders say they are “deeply concerned about the current state of the agency and its future.”

“Some of us have already encountered regulatory challenges that the FDA considers to be the result of the loss of experienced staff,” the letter states.

Source: www.nytimes.com