September 24, 2024 — 11.58am September 24, 2024 — 11.58am Save Bloomberg That widening gap between massive investment and meagre returns that is causing some angst among shareholders in companies like Google and Amazon. The hype around AI drove the share prices of the “Magnificent Seven” to record levels in July, but those prices have softened since as investors have started to focus on the maths of getting an appropriate return, within a reasonable timeframe, from investments that are huge and accelerating within a sector whose economics have yet to be defined. There’s clearly a market for AI products at present, albeit a relatively small and unprofitable one today. The size and economics of the eventual market is, however, unknown and unknowable at this earliest phase in AI’s development and may remain a matter for speculation for some years to come. The potential markets look vast, but whether a world transformed by AI could deliver profits commensurate with the risk capital sunk to create it is an impossible question to answer at present and will probably remain so for years (and trillions more dollars) to come. Investors in early-stage, speculative technology investments look for opportunities that might provide at least 10 times their investment and often many times more. The investments being made by OpenAI and its rivals will probably only be validated if, as could be the case, AI proves to be truly and radically transformative. It has to change the way the world lives and works and the companies have to be able to profit massively from the changes. That’s a long term, risky and capital-devouring project, which means OpenAI will almost certainly have to raise a lot more capital if it is to survive to the point where the question marks over AI’s commercial potential are removed, if they are removed. Loading Self-evidently, if it has attracted more investment from Microsoft and brought Apple and Nvidia onto its register, while opening a conduit to Middle Eastern sovereign wealth funds, OpenAI will have access to the capital to compete with Google, Meta, Amazon and its own core funder, Microsoft, which has hedged its bets, so long as its backers – and their own investors – remain confident of eventual gigantic payoffs. The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon. Save