Tech Investors Will Be Sweating the Dog Days of Summer in More Ways Than One
Plus, the tawdry saga of the Sam Altman movie & Meta makes a cloud play
The Week in Short
Sky-high valuations and volatile markets make for a nervous season. Amazon abandons its OpenAI movie, though we’ll still get to see it. Neocloud Together AI & German drone maker Quantum Systems landed major investment rounds. OpenAI wants to give the government a 5% stake. Meta is joining xAI in the business of selling compute to others. Anthropic co-founder Tom Brown brokers a truce with the US government. Lime enjoys a decent IPO. Bending Spoons’ offering proves even hotter.
The Main Item
Bubble Worries & FOMO Collide as the Epic AI Investment Boom Rolls On
Long gone are the days when summer offered respite from the dramas of markets and business cycles, and this year especially there are likely to be few languid days for anyone in the venture and AI industries.
Alongside the reports of new records, long-awaited IPOs, and Middle Eastern investors anxious to re-up AI bets, the financial press offers a veritable inventory of market indicators that history says mean trouble ahead.
The Bank for International Settlements, a central bank for the world’s central banks that’s supposed to birddog systemic risks, is amping up bubble warnings. Market momentum is encouraging margin trading in levered exchange-traded funds, which dramatically ratchets up risks and rewards. Those exceptionally strong corporate earnings that would appear to justify at least some of the stock run-up? They’re being juiced, says the Wall Street Journal.
It’s one thing for pundits like Bloomberg’s John Authers to worry about whether it will look obvious in hindsight that we’re in a bubble, or for professional bears like Michael Burry (pictured), who gained fame for his call against the real estate market in Michael Lewis’s The Big Short, to declare that it’s “the beginning of the end.”
It’s another thing when prominent investors and executives who’ve been among the industry’s loudest cheerleaders get worried. “I am very uncomfortable...I am not enjoying this moment at all,” said Founders Fund’s Trae Stephens, a co-founder of Anduril and a major defense tech investor, speaking on Jack Altman’s podcast. “We’re getting back to this point where prices are untethered from reality and it reminds me a lot of 2021.”
Palantir’s Alex Karp, for his part, went on a CNBC rant Wednesday about how enterprise customers were furious with the cost of AI and the business practices of the foundation model companies, and would soon start acting on that.
Political risk is rising everywhere. The bipartisan revolt against data centers is gaining strength around the country, with the facilities serving as a proxy for widespread fears about job losses and the dehumanization of society. “The AI backlash is only getting started,” blared The Economist last week. The fact that China appears to be fanning the flames doesn’t mean the opposition isn’t real.
The AI industry has few answers to its rolling PR crisis, though Elon Musk is trying a new approach, offering half-price Starlink subscriptions to quell data center opposition in Memphis. None of the potential costs of political blowback have been baked into AI financial forecasts.
And yet, FOMO runs strong, and for good reason. Investors who were hesitant about AI valuations a year or two ago have been humiliated as their peers enjoy huge mark-ups and get close to being able to cash out (especially via SpaceX). Sitting out the AI trade at this moment is like sitting out not just the game, but the whole tournament. Momentum rules the markets. As Charles Hudson noted on Turner Novak’s podcast, it’s a better career move to join bubbles rather than sit them out.
Even many of those who see an eventual crash believe there could be a few more years in the AI bull run, as indicated by our survey at Cerebral Valley AI London last week. The unprecedented revenue growth at Anthropic and OpenAI and many smaller AI companies remains intact, as does the investment thesis for the industry as a whole.
The opportunities — and dislocations — brought by AI are ultimately a long game; one thing most everyone agrees on is that we’re still in the early innings. But given the stakes, and the exceptionally large number of risk factors floating around out there, this summer isn’t going to be one for a lot of napping at the beach.
Hollywood Drama
Amazon Dumps OpenAI Movie. Wags Wonder Why.
Back in mid-June, Puck’s Matt Belloni broke the news that Amazon had decided not to distribute its almost-completed OpenAI movie Artificial. The film has real star power behind it, with Call Me By Your Name director Luca Guadagnino helming it and Andrew Garfield portraying Sam Altman, and Belloni heavily implied, though didn’t quite say, that Amazon’s surprising decision had to do with its $50 billion investment in OpenAI. Soon there was speculation that Altman himself wanted to kill it.
Suspicions only deepened when a handful of prominent houses including Netflix, A24, and Focus Features declined to take it on.
Then on Tuesday, indie distributor Neon announced it had picked up the movie and would release it later this year, so we’ll all get to judge for ourselves.
We’ve read an early copy of the script and it indeed presents Altman as Machiavellian while Elon Musk is a clown and Ilya Sutskever is idealistic but corruptible. AI itself isn’t as malevolent a force, though it’s possible that may have changed during the process.
Checking with sources who’ve seen the film or who spoke to people who’ve seen it, reactions were mixed. One source said it was a mess. Others had heard it wasn’t bad. Variety echoed that mixed reaction in their own reporting. It’s entirely possible this movie was dropped for qualitative and economic reasons and not because Hollywood is afraid of angering AI companies.
For its part, Neon said it’s going to pitch the movie for awards this fall. Should it somehow garner great buzz — box office success for such an esoteric subject feels like a reach — it would be a major black eye for Amazon. The studio is coming off releasing the critically panned Melania documentary, which was a naked bid for favor with the Trump administration. Even if Artificial is terrible, Jeff Bezos and his company have lost the benefit of the doubt when it comes to integrity.
Five Notable Deals
Together AI, Venice AI, Quantum Systems, CarbonSix, 8VC
A big neocloud play led a slow pre-holiday week of dealmaking.