They are spending a lot on shovels but it’s not clear that there is that much “stuff” (consumer demand) to be shoveled.
VC money can only take you so far, you still need to have an actual way of making money.
LLMs might effectively replace Google but they are already a commodity. It’s really not clear what moat OpenAI can build when there are already a bunch of proprietary/open models that are more or less on the same level.
That basically means that they can’t charge much above datacenter cost + small premium longterm and won’t be able achieve margins that are high enough to justify current valuation.
The moat is a first-party integration with Windows, a third-party integration with iOS, and first-mover advantage. The discount rate still isn't very high; ~5% is the risk-free rate. 157 billion is a reasonable valuation.
Integrations are not OAI's moat as those are primarily UX developments that are kept by Apple/MSFT. Right now, and if they want, they can change some lines of code to get up and running with another provider, like Anthropic or whatever.
Only moat OAI has right now is advanced audio mode / real-time audio API, plus arguably o1 and the new eval tools shown the other day as those are essentially vertical integrations.
And maybe, like you said, first-mover advantage. But is not that clear, as even Anthropic got ahead in the race for a while with Claude 3.5 Sonnet.
They are spending a lot on shovels but it’s not clear that there is that much “stuff” (consumer demand) to be shoveled.
VC money can only take you so far, you still need to have an actual way of making money.
LLMs might effectively replace Google but they are already a commodity. It’s really not clear what moat OpenAI can build when there are already a bunch of proprietary/open models that are more or less on the same level.
That basically means that they can’t charge much above datacenter cost + small premium longterm and won’t be able achieve margins that are high enough to justify current valuation.