ChatGPT and the AI Revolution: Is a Correction on the Horizon?

Since the introduction of the revolutionary AI chatbot ChatGPT in November 2022, the topic of a potential AI bubble has increasingly gained momentum. In particular, the demand for Nvidia graphics processors has skyrocketed, giving the company a market capitalization of over three trillion dollars – now ranking alongside Apple and Microsoft as one of the most valuable companies worldwide. Meanwhile, skeptics like David Cahn of Sequoia Capital express doubts about the profitability of the enormous investments in AI infrastructure. Despite billions in investments, there seems to be no "killer app" that appeals broadly to end users. Cahn argues that revenues must far exceed expenses for the colossal sums to be worthwhile. An example illustrates this: Nvidia's data center revenues would need to rise to 150 billion dollars per year for total expenses of 150 billion dollars to be covered by corresponding revenues of approximately 600 billion dollars. This is based on the assumption that half of the costs for data centers arise from Nvidia chips and a 50% margin for the software run on cloud infrastructures such as Amazon Web Services, Microsoft Azure, and Google Cloud. The increasing inventory of GPUs and minimal revenues from pure AI companies – with the exception of OpenAI, which is eyeing an annual revenue of 3.4 billion dollars but must also endure losses of 5 billion dollars – are seen as burdensome factors. Despite Microsoft's commitment to Azure OpenAI, direct revenues from generative AI remain comparatively low. David Cahn views the AI bubble as temporary and predicts significant economic value creation through AI. Nonetheless, he considers the current environment a speculative bubble, suggesting that a strong valuation adjustment for stocks like Nvidia might be imminent. Major technology companies such as Alphabet and Microsoft are already feeling investor backlash due to their rising AI expenditures, reflected in a decline in stock prices following the latest quarterly reports. Until investors are convinced that the anticipated returns are realistic, this resistance is likely to persist. In the long term, AI technology could have a transformative impact, similar to the internet. Projects such as autonomous vehicles, general artificial intelligence, and the creative capacity of generative AI could justify today's investments. While short-term corrections are probable, the long-term prospects for the AI sector remain promising.