By the end of this year, the tech industry will have invested about $717bon over three years into large language model (LLM) AI and the infrastructure needed to support it. While estimates for next year vary, it is possible that industry will invest a comparable amount. This suggests that the industry is receiving more capital than has been invested in the rest of the tech industry since the modern era began in 1956, the year the justice department’s consent decree with AT&T gave birth to Silicon Valley.
In a technology investing career that now spans 43 years, I have never seen a phenomenon remotely like large language model AI. Big Tech, journalists, politicians, CEOs and investors are all convinced that AI is an inevitable Next Big Thing that will change everything in our economy and society for the better.
Much has been written about LLMs, including books that challenge the promises of the industry, in at least one case suggesting LLMs are a confidence game. One issue that remains unaddressed is that even if the technology delivers on its promise, many, if not most of the current players are bound to fail. The knock-on effects of these failures may be catastrophic, especially for equity investors.
Depending on how you count, there are either five or six essentially identical LLM development programs in AI from Big Tech players in the US: Google, Amazon, Meta, xAi, and Microsoft/OpenAI, who may be either allies or competitors. This does not include Nvidia, which supplies semiconductors and software to the industry, Apple, which has a large program for internal use, Anthropic, founded by former OpenAI team members, and many others. Each one of the five or six Big Tech programs appears to be seeking a global monopoly, the cost of which will be measured in hundreds of billions of dollars.
Investment in AI in by corporate customers in 2022 was $91.9bn, which does not include investments from industry, investors and other sources. Gartner group estimates that total investment in LLMs, related infrastructure and other AI services will be $1.48tn, up nearly 50% on 2024. Even though that number includes investments that are AI-adjacent, the level of investment in AI is without precedent.
According to Epoch.ai, total sales of LLM products to the public by market leaders OpenAI, Google, and Anthropic were about $1bn in 2023, growing to about $4bn in 2024. Revenue from all sources this year may be between $235bn and $244bn, but the vast majority of that will go to the infrastructure required to train and operate LLMs. Almost every forecast anticipates continued high revenue growth for many years, reaching $1tn by 2031. At least one forecaster is predicting global revenues in excess of $3tn by 2033. But to achieve those figures, investment will have to remain gargantuan.
The huge gap between capital investment in infrastructure and end…
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