Dark cloud over ChatGPT revolution: The cost

MONDAY, MAY 22, 2023

The explosion of generative artificial intelligence (AI) has taken the world by storm, but one question all too rarely comes up: Who can afford it?

OpenAI bled around US$540 million last year as it developed ChatGPT and says it needed $100 billion to meet its ambitions, according to industry media The Information. 

“We’re going to be the most capital-intensive startup in Silicon Valley history,” OpenAI’s founder Sam Altman told a panel recently.

And when Microsoft, which poured billions of dollars in investment into OpenAI, is asked about how much its AI adventure will cost, the company answers with assurances it is keeping an eye on its bottom line.

Building something even near the scale of what OpenAI, Microsoft or Google have on offer would require an eye-watering investment in state-of-the-art chips and recruiting prize-winning researchers.

“People don’t realize that to do a significant amount of AI things like ChatGPT takes huge amounts of processing power. And training those models can cost tens of millions of dollars,” said Jack Gold, an independent analyst.

“How many companies can afford to go out and buy 10,000 Nvidia H100 systems that go for tens of thousands of dollars apiece?” asked Gold.

The answer is pretty much no one and in tech, if you cannot build the infrastructure, you rent it and that is what companies already do massively by outsourcing their computing needs to Microsoft, Google and Amazon’s AWS.

And with the advent of generative AI, this dependency on cloud computing and tech giants deepened, leaving the same players in the driver’s seat, experts warned.

‘Heavily underestimated’

The unpredictable costs of cloud computing “is a heavily underestimated problem for many companies”, said Stefan Sigg, chief product officer at Software AG, which develops software for businesses.

Sigg compares cloud costs to electricity bills and says companies that do not know better are in for “a big surprise” if they let their engineers run up bills in the mad rush to build tech, including AI.

Microsoft’s signature cloud offer is Azure and some observers believe the giant’s all-in bet on AI is really about protecting Azure's success and guaranteeing the cash cow’s future.

Azure has been the giant’s unsexy breadwinner for years, bringing in huge profits but without attracting the headlines of an iPhone or social media that go straight to the consumer.

For Microsoft, “the golden goose is a monetizing cloud with Azure because we’re talking about what could be a $20, $30, $40 billion opportunity annually down the road if the AI bet is successful,” said Dan Ives of Wedbush Securities.

Microsoft CEO Satya Nadella insists generative AI was “moving fast in the right direction”. 

Deeply respected on Wall Street, Nadella would have a six- or nine-month grace period to show his bet was a winner, Ives predicted.

Microsoft acknowledges the risk, but insists that on AI, it must “lead this wave”, CFO Amy Hood told analysts this month.

“We will charge for those AI capabilities, and then, ultimately, we’ll deliver operating profit,” she said.

‘Squashed out’

Piling up profit at the company founded by Bill Gates can only mean passing on the cost of AI to customers. 

From Main Street to Fortune 500, the dependency on the AI-amped will be an expensive one and companies and investors are drumming up alternatives to at least reduce the bill.

“AI training and GPT training will become a very important cloud service going forward,” said Spectro Cloud CEO Tenry Fu.

His company, like many others in the sector, helps companies optimize cloud technology to reduce expenses.

“But after training, a company will be able to get their model back for real AI application” and the dependence on the cloud giants would hopefully be reduced, he added.

Regulators are hoping they can keep up, and not leave the giants in charge, imposing their terms on smaller companies.

“Law enforcers [must] ensure that […] opportunities and openings for competition […] are not getting squashed out by the incumbents,” FTC chairwoman Lina Khan told CNBC.

But it might be too late, at least when it comes to which companies have the means to provide the groundwork for generative AI.

“Indeed, the number of companies that can train the true frontier models is going to be small just because of the resources required,” OpenAI’s Altman told a US Senate panel on Tuesday.

“And so I think there needs to be incredible scrutiny on us and our competitors,” he added.