($) AI May Have A Gross Margin and Bullshit Revenue Problem

The red hot generative AI sector may only be a year old, but it is already showing signs of financial shenanigans and profitability challenges. A pair of articles from The Information this week elucidated this problem.

Anthropic, one of the most prominent foundation AI model startups (and archnemesis to OpenAI), is reported to only have a gross margin of 50-55% based on its latest financials in December. Meanwhile, Microsoft is forming a new team to focus on deploying smaller AI models and making its many generative AI products cheaper to deploy than using OpenAI’s technologies, despite the symbiotic relationship between the two.

What is the bigger picture revenue and profitability problem these stories combined are telling? Let’s dig in…