In the last week, we’ve had no less than three different pieces asking whether the massive proliferation of data centers is a massive bubble, and though they, at times, seem to take the default position of AI’s inevitable value, they’ve begun to sour on the idea that it’s going to happen soon.
Meanwhile, quirked-up threehundricorn OpenAI has either raised or is about to raise another $8.3 billion in cash, less than two months since it raised $10 billion from SoftBank and a selection of venture capital firms.
I hate to be too crude, but where the fuck is this money going? Is OpenAI just incinerating capital? Is it compute? Is it salaries? Is it compute? Is it to build data centers, because SoftBank isn’t actually building anything for Stargate?
The Information suggested OpenAI is using the money to build data centers — possibly the only worse investment it can make other than generative AI, and it’s one that it can’t avoid because OpenAI also is somehow running out of compute. And now they’re in “early-stage discussions” about an employee share sale that would value the company at $500 billion, a ludicrous number that shows we’re leaving the realm of reality. To give you some context, Shopify’s market cap is $197 billion, Salesforce’s is $248 billion, and Netflix’s is $499 billion. Do you really think that OpenAI is worth more than these companies? Do you think they’re worth more than AMD at a $264 billion market cap? Do you?
AHhhhhhhh-
Amongst this already-ridiculous situation sits the issue of OpenAI and Anthropic’s actual revenues, which I wrote about last week, and have roughly estimated to be $5.26 billion and $1.5 billion respectively (as of July). In any case, these estimates were made based on both companies’ predilection for leaking their “annualized revenues,” or monthx12.
This extremely annoying term is one that I keep bringing up because it’s become the de-facto way for generative AI companies to express their revenue, and both OpenAI and Anthropic are leaking them intentionally, and doing so in a way that suggests they’re not using even the traditional ways of calculating them. OpenAI leaked on July 30 2025 that it was at $12 billion annualized revenue — so around $833 million in a 30-day period — yet two days later on August 1 2025 the New York Times reported they were at $13 billion annualized revenue, or $1.08 billion of monthly revenue.
It’s very clear OpenAI is not talking in actual calendar months, at which point we can assume something like a trailing 30 day window (as in the “month” is just 30 days rather than a calendar month). We can, however, declaratively say that it’s not doing “the month of June” or “the month of July” because if it was, OpenAI wouldn’t have given two vastly different god damn numbers in the same two day period. That doesn’t make any sense. There are standard ways to handle annualized revenue, and it’s clear they’re not following them.
And to be even clearer, while I can’t say for certain, I believe these leaks are deliberate. OpenAI’s timing matches exactly with fundraising.
On Anthropic’s side, these revenues are beginning to get really weird. Anthropic went from making $72 million ($875 million annualized) in January to $433 million in July — or at least, it leaked on July 1, 2025 that it was at $4 billion annualized to The Information ($333 million a month) and claimed it had reached $5 billion annualized revenue ($416 million) to Bloomberg on July 29 2025 .
How’d it get there? I’m guessing it was from cranking up prices on Cursor, and we’ve had the confirmation that’s the case thanks to The Information reporting that $1.4 billion of its annualized revenue is from its top two customers (so around $116 million a month), the biggest of which is Cursor. Confusingly, The Information also says that Anthropic’s Claude Code is “generating nearly $400 million in annualized revenue, roughly doubling from just a few weeks ago,” meaning about $33 million of monthly revenue.
In any case, I think Cursor is a huge indicator of the current fragility of the bubble — and the fact that for most AI startups, there’s simply no way out, because being acquired or going public does not appear to be a viable route.
Cursor Is A Systemic Risk To The AI Industry
I know it sounds a little insane, but I believe that Cursor is the weak point of the entire AI bubble, and I’ll explain why, and how this could go. This is, by no means, inevitable, but I cannot work out what Cursor does other than this.
Cursor makes — before, at least, their massive changes to their service — $500 million in annualized revenue, so around $42 million a month. This makes it the single-highest earning generative AI company that isn’t called OpenAI or Anthropic, and the highest-earning company built on top of (primarily) Anthopic’s technology. Its success is symbolic to the greater movement, and just as it hit its peak, Anthropic (and OpenAI, to a lesser extent) decided to add priority processing and priority service tiers, demanding more money up front and causing Cursor to have to massively degrade its service. I explain in detail in my premium piece from a few weeks ago. To explain in short, Cursor’s AI-powered coding editor used to have fairly unrestrained access to the various models provided by these companies. In mid-June — a few weeks after Anthropic introduced “priority tiers” that required companies to pay up-front and guarantee a certain throughput of tokens and increased costs on using prompt caching, a big part of AI coding — Cursor massively changed the amount its users could use the product, and introduced a $200-a-month subscription. As an aside to this, Anthropic also competes with Cursor’s AI coding product with their own service, Claude Code.Cursor, as Anthropic’s largest client (the second largest being Github Copilot), represents a material part of its revenue, and its surging popularity meant that they were sending more and more revenue Anthropic’s way.Anthropic used this opportunity to raise prices on accessing its models to continue providing service at an acceptable level to Cursor’s customers by introducing “Priority Tier” access on May 30 2025.This has allowed Anthropic to juice its revenues, and due to the upfront nature of these contracts, Cursor is locked-in regardless of how well it does. The net result of these cost increases means that Cursor’s product is less attractive to its customers, and will thus make it less money.At this point, one has to ask — how does Cursor survive? Their product isn’t profitable, and the means it used to make their company so successful have become untenable. It has guaranteed a certain throughput of tokens-per-second to the major model developers, chief of them Anthropic, but Cursor itself said it’s signed multi-year deals with multiple cloud providers like OpenAI, xAI and Google.Cursor’s product is now worse. People are going to cancel their subscriptions. Its annualized revenue will drop, and its ability to raise capital will suffer as a direct result. It will, regardless of this drop in revenue, have to pay the cloud companies what it owes them, as if it had the business it used to. I have spoken to a few different people, including a company with an enterprise contract, that are either planning to cancel or trying to find a way out of their agreements with Cursor.If Cursor is allowed to die, it will be unable to pay a chunk of Anthropic’s revenue — and yes, the revenue of other providers too. It will also bring into question whether it’s possible to build — putting aside any questions of profitability — a business of any kind offering services built on top of generative AI, and in turn bring into doubt the veracity of investing in this sector.It will also call into question whether any other generative AI company is a real business.This will naturally lead to the question of why we’re building all these god damn data centers!
Cursor, at this point, faces two options: die, or get acquired. This is not an attack on anyone who works at the company, nor anything personal. The unit economics of this business do not make sense and yet, on some level, its existence is deeply important to the valley’s future.
So, who could acquire Cursor?
OpenAI? OpenAI couldn’t acquire Windsurf because it was too worried Microsoft would get the somehow-essential IP of one of what feels like a hundred different AI-powered coding environments. It also already tried and failed to buy Cursor, and if I’m honest, I bet Cursor would sell now. Honestly, Cursor fucked up bad not selling then. It could have got $10 billion and Sam Altman would’ve had to accelerate the funding clause. It would’ve been so god-damn sick, but now the only “sick” thing here is Cursor’s fragile, plagued business model.
How about Anthropic? Eh! It already has their own extremely-expensive coding environment, Claude Code, which I estimated loses the company 100% to 10,000% of a subscription per-customer a few weeks ago, and now Anthropic is adding weekly limits on accounts, which will, I believe, create some of the most gnarly churn in SaaS history. Also, does Anthropic really want to acquire its largest customer? Also, with what money? It’s not raising $5 billion to bail out Cursor. Anthropic needs that to feed directly into Andy Jassy’s pocket to keep offering increasingly-more-complex models that never quite seem to be good enough.
Google? It just sort-of-bought Windsurf! It can’t do that again. It’s already given out the participation trophy multiple billions of dollars to investors and founders so nobody has to get embarrassed about this, and then allowed Cognition to pick up the scraps of a business that made $6.83 million a month after burning $143 million of investor capital (TechCrunch reports Windsurf was left with $100 million in cash post-acquisition). TechCrunch also reports that Cognition paid $250 million for what remained, and that this deal didn’t actually pay out the majority of Windsurf’s employees,
Meta? If I’m Cursor’s CEO, I am calling Mark Zuckerberg and pretending that I think the only person in the world who can usher in the era of Superintelligence is the guy who burned more than $45 billion on the metaverse and believes that not wearing AI glasses in the future will be a disadvantage. I would be saying all manner of shit about the future, and that the only way to do this was to buy my AI-powered coding startup that literally can’t afford to exist.
And that really is the problem. These companies are all going through the same motions that every company before them did — raise as much money as possible, get as big as possible, and eventually scale to the point you’re fat with enterprise cash.
Except the real problem is that, just like big tech’s new gluttony of physical real estate it’s taken on, generative AI companies are burdened with a constant and aggressive form of cloud debt — the endless punishment of the costs of accessing the API for generative AI models that always seem to get a little better, but never in such a way that anything really changes other than how much Anthropic and OpenAI are going to need at the end of the month or they break your startup’s legs.
I’m not even trying to be funny! Anthropic raised its prices on Cursor so severely it broke its already-unprofitable business model. These products — while also, for the most part, not producing that much revenue — need to be sold with users being aware of (and sensitive to) the cost of providing them, and Cursor’s original product was $20-a-month for 500 “fast requests” of different models, in the same way that accessing Claude Code on any subscription is either $20, $100, or $200 a month rather than paying per API call, because these companies all sell products that shield the customer from the actual costs of running the services.
The irony is that, despite being willing to kill these companies by fundamentally changing the terms upon which they access these models, Anthropic is also, in some way, dependent on Cursor, Replit, and other similar firms continuing to buy tokens at the same rate as before, as that consumption is baked into its ARR figures, as well as the forward-looking revenue projections.
It is, in some sense, a Kobayashi Maru. Anthropic has an existential need to screw over its customers by hiking rates and imposing long-term commitments, but its existence is also, in some way, predicated on these companies continuing to exist. If Cursor and Replit both die, that’s a significant chunk of Anterior’s API business gone in a flash — and, may I remind you, that significantly overshadows its subscription business (making it almost like an inverse of OpenAI, where subscriptions drive the bulk of revenue).
Anthropic’s future is wedded to Cursor, and I just don’t see how Cursor survives, let alone exits, or gets subsumed by another company in a way that mirrors how acquisitions have worked since…ever.
If Cursor does not sell for a healthy amount — I’m talking $10 billion plus, and I mean actually sell, not “the founders are hired in a strange contractual agreement that pays out investors and its assets are sold to Rick from Pawn Stars” — it will prove that no generative AI company, to this date, has actually been successful. In reality, I expect a Chumlee-esque deal that helps CEO Michael Truell buy a porsche while his staff makes nothing.
Is Cursor worth $10 billion? Nope! No matter how good its product may or may not be, it is not good enough to be sold at a price that doesn’t require Cursor to incinerate hundreds of millions of dollars with no end in sight.
And this ultimately gives us the real conundrum — why aren’t generative AI startups selling?
No, Really, Why Are There So Few Generative AI Acquisitions?
Before we go any further, there have been some acquisitions, but they are sparse, and seem almost entirely centered around bizarre acqui-hires and confusing fire sales.
AMD bought Silo AI, “the largest private AI lab in Europe,” in August 2024 for $665 million, which appears to be the only real acquisition in generative AI history, and appears to be partially based on Silo’s use of AMD’s GPUs.
Elsewhere, NVIDIA bought OctoAI for an estimated $250 million in September 2024, after buying Brev.dev in July 2024 for an undisclosed sum, and then Gretel in March 2025. Yet in all three cases these are products to deploy generative AI, and not products built on top of generative AI or AI models. Canva bought “generative AI content and research company” Leonardo.AI in July 2024 for an undisclosed sum.
Really, the only significant one I’ve seen was on July 29 2025 — publicly-traded customer service platform NICE buying AI-powered customer service company Cognigy in a $955 million deal. According to Cxtoday, Cognigy expects about $85 million in revenue this year, though nobody appears to be talking about costs. However, Cognigy, according to some sources, charges tens or hundreds of thousands per contract for its “AI voice agents” that can “understand and respond to user input in a natural way.”
Great! We’ve got one real-deal “company built on models” acquisition, and it’s a company that most people haven’t heard of making around $7 million a month.
Let’s take a look at the others.
Inflection AI to Microsoft, which was not an acquisition but a “$650 million licensing deal” that, according to FastCompany, may be more like $1 billion when you include things like how much it paid Inflection CEO and former Deepmind co-founder Mustafa Suleyman. According to FastCompany, the deal involves a license to sell Inflection’s models, a waiver against any employee claims against Inflection or Microsoft, paying off investors, and some sort of unnamed compensation for employees.Oof! That’s a stinky deal.Windsurf to Google (and Cognition), which was also not an acquisition. Windsurf’s c-suite went to Google for $2.4 billion, which paid them off along with its investors, and then the rest of the staff and the product got acquired by Cognition for $250 million. According to TechCrunch, investors made $1.2 billion on the deal, with Windsurf co-founders Varun Mohan and Douglas Chen making another $1.2 billion, and its staff getting to start a new job at a different company building something else, with, according to TechCrunch “a large portion of Windsurf’s approximately 250 employees” not benefiting from the deal.As an aside, Mohan and Chen fucking suck. Couldn’t afford to break off some of those billions for your people, huh? What a pair of fucking assholes.Io Products to OpenAI, an all-stock acquisition. This deal is a farce and it’s unclear if OpenAI actually bought anything. $6.4 billion in stock? For what? Jony Ive’s weird face staring at you lovingly as he says stuff like “I Think We Should Make It Look Like A Circle” while taking a $5 million dollar salary? Get outta here. Not real money.Character.ai to Google. This too was not an acquisition. Google, to quote the Wall Street Journal, “paid $2.7 billion to bring back an AI Genius who quit in frustration.” While I don’t like the term “genius,” Shazeer was one of the authors of the original “Attention Is All You Need” paper that began the Large Language Model era. Nevertheless, much like Inflection, Google paid a licensing fee to Character.ai for its models and hired, according to The Information, “its cofounders and many of its engineers,” creating a fund that would pay out any vesting shares (as in the shares you are given when you join a company that you accrue over the time you work there) until July 2026.
Outside of one very industry-specific acquisition, there just doesn’t seem to be the investor hunger to buy a company valued at $9.9 billion.
And you have to ask why. If AI is, as promised, the thing that’ll radically change our economy, and these companies are building the tools that’ll bring about that change, why does nobody want to buy them?
And, in the broader term, what does it mean when these companies — those with $10bn, or in the case of OpenAI, $300bn valuations — can’t be bought, and can’t go public? Where does this go? What happens next? What’s the gameplan here? How will the venture firms that ploughed billions of capital into these businesses bring a return for their LPs if there are no IPOs or buyouts?
The economic implications of these questions are, quite frankly, terrifying — especially when you consider the importance that VC has historically held in building the US tech ecosystem, and they raise further questions about the impact of an AI bubble on companies that are promising, and do have a viable business model, and a product with actual fit, but won’t be able to actually raise any cash.
“But Ed, what if Cursor turns profitable now?”
Great! I would believe it was possible if it had ever, ever happened, which it has not.
I’m not even being sarcastic or rude. It has just not happened. No company that actually stakes their entire product on generative AI appears to be able to make money. Glean, a company that makes at best $8.3 million a month ($100 million annualized revenue) said it had $550 million in cash December of last year, and then had to raise $150 million in June of this year. Where did that money go? Why does a generative search engine product with revenues that are less than a third of the Cincinnati Reds baseball team need half a billion dollars to make $8.3 million a month?
I’m not saying these companies are unnecessary, so much as they may very well be impossible to run as real businesses. This isn’t even a qualitative judgment of any one generative AI company. I’m just saying, if any of these were good businesses, they would be either profitable or being acquired in actual deals, and there would be good businesses by now.
The amount of cash they are burning does not suggest they’re rapidly approaching any kind of sane burn rate, or we would have heard. Putting aside any kind of skepticism I have, anything you may hold against me for what I say or the way I say it, where are the profitable companies? Why isn’t there one, outside of the companies creating data to train the AI models, or Nvidia? We’re three years in, and we haven’t had one.
We also have had no exits and no IPOs. There has been no cause for celebration, no validation of a business model through another company deciding that it was necessary to continue its dominance by raising funds on the public market, or allowing actual investors — flawed though they may be — act as the determiner of their value.
It is unclear what the addition of Windsurf’s intellectual property adds to Cognition, much like it’s a little unclear what differentiates Cognition’s so-called AI-powered software engineer “Devin” from anything else on the market. I hear Goldman is paying for it, and said the stupidest shit I’ve ever heard to CNBC that nevertheless shows how little it’s actually paying for:
“We’re going to start augmenting our workforce with Devin, which is going to be like our new employee who’s going to start doing stuff on the behalf of our developers,” Argenti told CNBC. “Initially, we will have hundreds of Devins [and] that might go into the thousands, depending on the use cases.”
Hundreds of Devins = hundreds of seats. At a very optimistic 500 users at the highest-end pricing of $500-a-month (if it’s $20-a-month, Cognition is making a whole, at most, less than $20,000 a month) — and let’s assume that it does a discount at enterprise scale, because that always happens — that’s $250,000 a month! Wow! $3 million in revenue? On a trial basis? Amazing!
Sidenote: I’m so impressed! To be clear, it’s probably far fewer seats and far fewer dollars a month.
In fact, I can’t find a shred of evidence that Cognition otherwise makes much money. Despite currently raising $300 million at a $10 billion valuation, I can find no information about Cognition’s revenues beyond one comment from The Information from July 2024, when Cognition raised at a $2 billion valuation:
Cognition’s fundraise is the latest example of AI startups raising capital at sky-high valuations despite having little or no revenue.”
In a further move per The Information that is both a pale horse and a deeply scummy thing to do, Cognition has now laid off 30 people from the Windsurf team, and is now offering the remaining 200 buyouts equal to 9 months of salary and, I assume, the end of any chance to accrue further stock in Cognition. CEO Scott Wu said the following in the email telling Windsurf employees about the layoffs and buyouts:
“We don’t believe in work-life balance—building the future of software engineering is a mission we all care so deeply about that we couldn’t possibly separate the two,” he said. “We know that not everyone who joined Windsurf had signed up to join Cognition where we spend 6 days at the office and clock 80+ hour weeks.”
All that piss, vinegar, and burning of the midnight oil does not appear to have created a product that actually matters. I realize this is a little cold, but if you’re braying and smacking your chest about your hard-charging, 6-days-a-week office culture, you should be able to do better than “we have one publicly-known customer and nobody knows our revenue.” Maybe it’s a little simpler: Cognition paid $250 million to acquire Windsurf so that it could, after the transaction, say they have $82 million in annualized revenue.
If that’s the case, this is one of the dodgiest, weirdest acquisitions I’ve seen in my life — two founders getting a few hundred million dollars between them and their investors, and a few of their colleagues moving with them to Google, leaving the rest of the staff effectively jobless or in Hell with little payoff for their time working at Windsurf.
I can only imagine how it must have felt to go from being supposedly acquired by OpenAI to this farcical “rich get richer” bullshit. It also suggests that the actual underlying value of Windsurf’s IP was $250 million.
So, I ask, why, exactly, is Cognition worth $10 billion? And why did it have to raise $300 million after raising “hundreds of millions” according to Bloomberg in March? Where is the money going? It doesn’t seem to have great revenue, Carl Brown of the Internet of Bugs revealed it faked the demo of “Devin the AI powered software developer” last year, and Devin doesn’t even rank on SWE-benchmark, the industry standard for model efficacy at coding tasks.
At best, it’s now acquired their own unprofitable coding environment and the smidgen of revenue associated. How would Cognition go public? What is the actual exit path for Cognition, or any other generative AI startup?
Get Acquired, Go Public, Or Die
And that, right there, is Silicon Valley’s own housing crisis, except instead of condos houses they can’t afford with sub-prime adjustable rate mortgages, venture capitalists have invested in unprofitable, low-revenue startups with valuations that they can never sell at. And, like homeowners in the dismal years of 2008 and 2009, they’re almost certainly underwater — they just haven’t realized it yet.
Where consumers were unable to refinance their mortgages to bring their monthly payments down, generative AI startups face pressure to continually raise at higher and higher valuations to keep up with their costs, with each one making it less likely their company will survive.
The other difference is that, in the case of the housing crisis, those who were able to hold onto their properties eventually saw their equity recover to their pre-crash levels, in part because housing is essential and because its price is influenced just as much by supply and demand, as it is the ability for people to finance the purchase of properties, and when the population increases, so too does the demand for housing. None of that is true with AI. There’s a finite number of investors, a finite number of companies, and a finite amount of capital — and those companies are only as valuable as the expectations that investors have for them, and as the broader sentiment towards AI.
Who is going to buy Cognition? Because the only other opportunity for the investors who put the money into this company to make money here — let alone to recoup their initial investment — is for Cognition to go public. Do you think Cognition will go public? How about Cursor? It’s worth $9.9 billion, and there was a rumour that it was raising at a valuation of $18 billion to $20 billion back in June.
Do you see Perplexity, at a valuation of $18 billion, selling to another company? The alternative, as discussed, is that Perplexity, a company with 15 million users and, at $150 million annualized revenue, is still making less than half of the revenue of the Cincinnati Reds baseball team ($325 million in annual revenue, and that’s real money, not “annualized revenue”), must go public. Perplexity has, at this point, raised over a billion dollars to lose $68 million in 2024 on $34 million of revenue.
By comparison, the Cincinnati Reds is a great business, with a net monthly income of $29 million, all to provide a service that upsets and humiliates millions of people from Ohio every year for the pleasure of America.
Putting aside the Reds, what exactly is it that Perplexity could offer to the public markets as a stock, or to an acquirer? Apple considered acquiring it in June, but Apple tends to acquire the companies it wants to integrate into the core business (as was the case with Siri), which makes me think that Perplexity leaked information about a deal that was never really serious. Hell, Meta talked about acquiring it too. Isn’t it weird that two different companies talked about buying Perplexity but neither of them did it? CEO Aravind Srivinas said in July that he wanted to “remain independent,” which is a weird thing to say after talking to two giant multi-trillion-dollar market cap tech firms about selling to them.
It’s almost as if nobody actually wants to buy Perplexity, or any of these sham companies, which I know sounds mean, but if you are worth billions or tens of billions of dollars and you can’t make more than a bottom-tier baseball team in fucking Ohio, you are neither innovative nor deserving of said valuation.
But really, my pissiness and baseball comparisons aside, what exactly is the plan for these companies? They don’t make enough money to survive without a continuous flow of venture capital, and they don’t seem to make impressive sums of money even when allowed to burn as much as they’d like. These companies are not being forced to live frugally, or at least have yet to be made to, perhaps because they’re all actively engaged at spending as much money as possible in pursuit of finding an idea that makes more money than it loses. This is not a rational or reasonable way to proceed.
Yes, there are startups that can justify burning capital. Yes, there are companies that have burned hundreds of millions of dollars to find their business models, or billions in the case of Uber, but none of these companies are like those companies in the generative AI space. GenAI businesses don’t have the same economics, nor do they have the same total addressable markets. If you’re going to say “Amazon Web Services,” I already explained why you’re wrong a few weeks ago.
These startups are their VC firms’ subprime mortgages, overstuffed valuations with no exit route, and no clear example of how to sell them or who to sell them to.
The closest they’ve got is using generative AI startups as beauty pageants for guys wearing Patagonia, finding ways to pretend that the guy who runs an AI startup — sorry, AI lab — is some sort of mysterious genius versus just another founder in just another bubble with just another overstuffed valuation.
The literal only liquidity mechanism (outside of Cognigy) that generative AI has had so far is “selling AI talent to big tech at a premium.” Nobody has gone or is going public, and if they are not going public, the only route for these companies is to either become profitable — which they haven’t — or sell to somebody, which they do not.
But I’ve been dancing around the real reason they won’t sell: because, fundamentally, generative AI does not let companies build something new. Anyone that builds a generative AI product is ultimately just prompting the model, albeit in increasingly more-complex ways at the scale of something like Claude Code — though Anthropic has the advantage of being one of the main veins of infrastructure. This means that a generative AI company owns very few unique things beyond their talent, and will forever be at the mercy of any and all decisions that their model provider makes, such as increasing prices or creating competing products.
I know it sounds ludicrous, but this is the reality of these companies. While there are some companies that have some unique training and models, none of them seem to be building interesting or unique products as a result.
If your argument is that these things take some time — how long do they have?
No, really! So many of you have said that “this is what happens, they burn a bunch of money, they grow, and then…” and then you stop short because the next thing you say is “turn profitable by getting enterprise customers.” Nobody can do the first part and few can do the second part in anything approaching a consistent fashion.
But really, how long should we give them? Three years?
Perplexity’s had three years and a billion dollars, it doesn’t seem to be close to profitable. How long does Perplexity deserve, exactly? An eternity?
Every single example of a company that has “burned a lot of money and then not done so in the end” has been a company with a physical thing or connections to the real world, with the exception of Facebook, which was never the kind of cash-burning monstrosity that generative AI is.
There has never been a software company that has just chewed through hundreds of millions — or billions — of dollars and then suddenly became profitable, mostly because the magical valuations of software have been in their ability to transcend infrastructure. One’s unit economics in the sales of software like Microsoft Office or providing access to Instagram do not require the most powerful graphics processing units run at full tilt at all times, and those are products that people like and want to use every day.
I get people saying “they’re in the growth stage!” about a few companies, but when all of them are unprofitable, and even the unprofitable ones outside of OpenAI and Anthropic aren’t really making impressive amounts of money anyway? C’mon! This isn’t anything like any boom that leads to something, and it’s because the economics do not make sense.
And that’s before we get to OpenAI and Anthropic!
OpenAI and Anthropic, And The Impossible Road Ahead
So, as a reminder, OpenAI appears to have burned at least ten billion dollars in the last two months. It is has just raised another $8.3 billion dollars (after raising $10 billion in June according to the New York Times), and intends to receive around $22.5 billion by the end of year from SoftBank, and that is assuming it becomes a for-profit entity by the end of the year, and if that doesn’t happen, the round gets cut to $20 billion total, meaning that SoftBank would only be on the hook for a further $1.7 billion.
I am repeating myself, but I need you to really get this: OpenAI just got $10 billion in June 2025, and had to raise another $8.3 billion in August 2025. That is an unbelievable cash burn, one dwarfing any startup in history, rivalled only by xAI, makers of “Grok, the racist LLM,” losing it over $1 billion a month.
I should be clear that if OpenAI does not convert to a for-profit, there is no path forward. To continue raising capital, OpenAI must have the promise of an IPO. It must go public, because at a valuation of $300 billion, OpenAI can no longer be acquired, because nobody has that much money and, if let’s be real, nobody actually believes OpenAI is worth that much. The only way to prove that anybody does is to take OpenAI public, and that will be impossible if it cannot convert.
And, ironically, Softbank’s large and late-stage participation makes any exit harder, as early investors will see their holdings diluted as a percentage of total equity — or whatever the hell we’re calling it. While a normal company could just issue equity, and deal with the dilution that way, OpenAI’s structure necessitates a negotiation where companies can obstruct the entire process if they see fit.
Speaking of companies that might obstruct that transition, let’s talk about Microsoft. As I asked in my premium newsletter a few weeks ago, what if Microsoft doesn’t want OpenAI to convert? It owns all the IP, it owns access to all OpenAI’s research, and already runs most of its infrastructure. While — assuming a best-case scenario — that it would end up owning a massive chunk of the biggest tech startup of all time (I’m talking about equity, not OpenAI’s current profit-sharing units), Microsoft might also believe that it stands more to gain by letting AI die and assuming its role in the AI ecosystem.
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