AI Giants Face A Potential Cost Meltdown

Open AI CEO Sam Altman speaks during a talk session in Tokyo, Japan. (Photo by Tomohiro Ohsumi/Getty Images)

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AI’s economics are starting to break down. Across Big Tech, startups and model providers, companies are discovering that the cost of running generative AI systems is rising faster than the revenue they bring in — a reversal that is forcing budget cuts, internal tool restrictions and warnings from executives who once championed the technology. If the trend continues, the sector’s soaring capital spending could drag on margins and valuations.

For more than a decade, the idea that AI could replace massive numbers of workers has fueled both optimism and anxiety — and helped justify enormous investment across the tech industry. But the numbers now tell a different story. No matter how compelling the narrative, the economics have to work. And increasingly, they aren’t, raising questions about whether the assumptions underpinning today’s AI boom can hold.

AI Costs Start Outrunning The Story

A number of companies developing basic generative AI technology — separate from the decades of other AI technologies embedded in software — are finding that using the generative AI they promote costs more than they expected.

Axios senior AI correspondent Madison Mills, speaking to CNN last month, said she has been hearing from companies about how much they spend on the technology. Keeping human employees might be more economical.

When asked about this dynamic, Mills said, “But that’s what we’re really starting to see, especially at the big tech companies. I spoke with a VP at NVIDIA who first flagged this to me. He said, ‘Oh yes, for months, our costs for my team have been more for AI than human.’ So that was the first flag. And then we started to hear this coming out in droves.” In her Axios article, Mills identified the Nvidia vice president as Bryan Catanzaro, vice president of applied deep learning.

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