A Question Fascinating Me Right Now
I have seen less talk than I expect on if Large Language Models (LLMs) are a technology where little of the value will accrue to the companies and investors, but instead is reaped by consumers. Economist call this “consumer surplus” where most of the value created by a product or industry is captured by the customer.
The most famous of these is the technology of aviation and the airlines throughout their history. Flight is as magical of a technology as AI LLMs, that dramatically changed the world, yet the airline industry has been a value destroyer for its investors and for most of its history a terrible business to be in. However, it has been amazing for its customers and mankind, reshaping our world for the last 100 years. The reason why miraculous technologies can make poor businesses is extremely high fixed costs (data centers, GPUs/TPUS, model training), and intense competition akin to a knife fight.
Warren Buffet calls these type of industries a “death trap for investors”. Regarding the airlines and aviation technology his quotes summarize perfectly what might happen with foundational LLM companies and the industry:
“Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.”
“The airline business has been extraordinary. It has eaten up capital over the past century like almost no other business…”
Foundational LLMs take a horrendous amount of capital and infrastructure to build, let alone stay on the cutting edge. At the time of this writing (September 2025) credible reports on OpenAI’s financials indicate an expected $13Bn in revenue in 2025 leading to an $8Bn loss with a 2026 forecasted loss of over $17Bn. The cash burn over the next 4 years is forecasted to be over $100Bn in losses.
It is one of the big questions of our time as to if these foundational LLMs have a path toward the high growth, high profitability we have come to expect from large technology companies. Or are LLM providers a “bottomless pit, attracted by growth when they should have been repelled by it”?
(Post written the old fashioned way - via human. No AI used in this writing)