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Artificial intelligence start-ups are overvalued and most will fail to make money, according to an early OpenAI backer in a warning to investors who are pouring billions into the buzzy sector.
Since the launch of OpenAI’s ChatGPT chatbot a year ago, investors have rushed to put their money in AI start-ups, including rival chatbot makers Inflection, Anthropic, and Cohere, sending valuations soaring.
“Most investments in AI today, venture investments, will lose money,” said the backer this month at a technology conference in Laguna Beach, California.
Speaking to the Financial Times on the sidelines of the Wall Street Journal’s Tech Live event, the backer drew a parallel between the hype around AI and last year’s frenzy of investment into cryptocurrency start-ups, including a failed exchange.
Many later entrants are “investing because everybody else is investing, that is what’s happening in AI.” This year, venture capitalists have invested $21.5bn into AI companies globally, compared with $5.1bn in all of last year, according to PitchBook.
Many hope that bets on highly valued companies will pay out because others will invest later at an even greater valuation – a phenomenon known as the “greater fool theory.”
The backer is confident AI will radically change the world. They believe AI has the potential to take on 80 per cent of the workload in 80 per cent of all human roles over the next two decades, and will create huge economic value.
The backer’s venture firm was one of the first to bet on OpenAI, investing $50mn in the young company in early 2019. OpenAI is now seeking a valuation of around $86bn.
The valuations of rival AI companies have also soared this year. Anthropic was valued at $5bn in a deal earlier this year, before it raised a larger round from Amazon, while Cohere was valued at $2.1bn this summer and Inflection reportedly at $4bn. Fledgling businesses have also secured eye-catching sums.
The backer suggested they would sit out later-stage funding rounds where expectations risked exceeding the underlying value of the business.
Their firm’s other investments include online grocery delivery companies and financial technology companies.
The backer also highlighted concerns that powerful AI technology could be used to undermine next year’s US presidential election. “There will be millions of bots interfering with our election next year… nation states – which means China mostly – influencing the election next year and attempting to make democracy dysfunctional,” they said.
They lauded efforts by the Biden administration and Congress to staunch the flow of US capital and expertise to Chinese companies working on AI, semiconductors, or quantum computing.
The US should use all the tools at its disposal to win the AI race with China, including importing talented researchers from Russia, pulling in capital from the Middle East, and creating an attractive regulatory environment, they suggested.
Homegrown AI tools could provide free doctors or AI tutors to children around the world, they added. “That kind of ability to bring services to people who desperately need it will result in whether western values win or China wins. I think that’s the key.”