How to think about AI company finances

OpenAI and Anthropic are using the standard tech startup playbook.

This post originally appeared in Understanding AI.

“Once investors are confident that a company has a clear path to profitability, they are often willing to fund another round of expansion without waiting for the previous round of investments to pay off.”

Last week, I wrote an article arguing that there was no obvious AI bubble. I argued that AI companies are making massive investments in data centers due to surging demand for their services, and that demand is likely to continue growing in the next couple of years.

This prompted several thoughtful comments asking variants of the same basic question: if there’s so much demand for this technology, why are AI companies losing so much money? As I thought about how to respond, I became convinced that it would be helpful for me to explain the intellectual framework I use to think about questions like this.