Yeah no one here is confusing the two. A lot of people however do seem to miss that to investors (of all sectors, not just AI) running at a deficit is not necessarily something to shy away from. Most companies that are expanding extremely fast are run at deficits because building out a company usually costs more than it initially makes. So if you can show high revenue and in particular YoY growth (and they actually do) being at a deficit is not as big of an issue to investors.
I think what makes this worse is that their deficits are in the 10s of billions compared to most other startups being in the millions, even if the revenue to expenses ratio is better.
If I start a tech company and I spend 100 million dollars but only pull in 10 million in revenue, that’s not great having a 10:1 expense to revenue ratio and 90 million in debt. In the leaked openAI financials from earlier this year, it was something like 13 billion revenue to 33 billion expenses, or about 3:1 expenses to revenue, which certainly seems better. However, the magnitude in actual costs is so much bigger at that point and the risk so much higher for investors. A billionaire can stand to lose on a 90 mill dollar investment, but it hurts a lot more on a 10 billion dollar investment.
And also, what’s their path to profitablity? The premiere models are already expensive and getting more expensive. They’d have to charge significantly more to start breaking even, and people just won’t pay for that. The cost to continue building and maintaining new DCs is t going to lessen the expenses either. I just think at some point investors are going to realize they aren’t going to get an ROI on their investment and either cut back or drop out all together.
Yeah no one here is confusing the two. A lot of people however do seem to miss that to investors (of all sectors, not just AI) running at a deficit is not necessarily something to shy away from. Most companies that are expanding extremely fast are run at deficits because building out a company usually costs more than it initially makes. So if you can show high revenue and in particular YoY growth (and they actually do) being at a deficit is not as big of an issue to investors.
I think what makes this worse is that their deficits are in the 10s of billions compared to most other startups being in the millions, even if the revenue to expenses ratio is better.
If I start a tech company and I spend 100 million dollars but only pull in 10 million in revenue, that’s not great having a 10:1 expense to revenue ratio and 90 million in debt. In the leaked openAI financials from earlier this year, it was something like 13 billion revenue to 33 billion expenses, or about 3:1 expenses to revenue, which certainly seems better. However, the magnitude in actual costs is so much bigger at that point and the risk so much higher for investors. A billionaire can stand to lose on a 90 mill dollar investment, but it hurts a lot more on a 10 billion dollar investment.
And also, what’s their path to profitablity? The premiere models are already expensive and getting more expensive. They’d have to charge significantly more to start breaking even, and people just won’t pay for that. The cost to continue building and maintaining new DCs is t going to lessen the expenses either. I just think at some point investors are going to realize they aren’t going to get an ROI on their investment and either cut back or drop out all together.