Hey there,

AI is basically eating the American economy, so I'm listening closely to two of my favorite business commentators, Bloomberg's Tracy Alloway and Joe Weisenthal, every time they touch an AI-adjacent topic.

(And almost everything - from water to debt to crime - is an AI-adjacent topic these days.)

Here's their latest, where they note that all the tech companies are losing money on AI right now (Bloomberg gift link), and a similar article from the Wall Street Journal about AI startups being "sinkholes" for money.

The key points:

• Without record-breaking AI infrastructure investments from Google, Meta, OpenAI, Amazon, Nvidia and a handful of other companies, the U.S. economy would probably be in bad shape right now.
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• The companies that sell AI-powered software are universally losing money. Inference (day-to-day AI use) is very expensive and every company is incentivized to compete on price, even to the point of losing money.
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• This worked for Uber and DoorDash, who lost money on every ride/delivery for many years, and eventually became very profitable after achieving a big market share and upping prices. However, that was in an era of very low interest rates, when "money was free." You could argue that it will be much harder to achieve the level of market share in the current AI software categories - e.g. coding assistants or image generation - than it was in delivery and ride-sharing.
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• Companies in China obviously can't directly compete with Uber and DoorDash in Minnesota... but Chinese-built models like DeepSeek, Qwen and Kimi are freely available and almost as good as the ones the big American tech companies have released.
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• OpenAI probably lost $12 billion in the last three months, which is sort of like losing an entire Chipotle ($42B total value), Target ($42B total value) or Delta Airlines ($38B total value) in a year.

All of this sounds scary. But keep in mind that none of us is directly exposed to this because we're not starting AI startups that sell tokens. (Unless you run companies like Cursor and Jasper, in which case, welcome to the newsletter and sorry for the reality check.