Why "Free" Could Sink The AI Bubble

"I told Lee that artificial intelligence might be the most overfunded "free product" in modern business. We both use AI tools every day, and like most people, we don't pay a dime. That's the problem. Trillions have been spent on data centers, chips, and training models, yet the vast majority of users aren't customers. Venture-backed firms like OpenAI and Anthropic depend on free traffic and vague enterprise plans."

"A recent Janus Henderson report said AI monetization is still in "early progress." Another warning came from InvestingLive, noting that consumer AI "struggles with monetization" and "infrastructure costs remain high." The Bubble Risk Is Real Lee pointed out that this looks a lot like a bubble, citing "the sheer trillions of dollars" going in without visible return. I agreed. As MarketWatch recently put it, we might be watching "a slow-motion AI bubble deflation." Hedge funds like Elliott Management even called Nvidia's valuation "bubble land." ( FT)"

"I told Lee that I still think there's opportunity, but not for the foundational AI builders. Instead for the companies that build on top of them. Businesses that design AI tools for specific verticals like law, healthcare, or logistics. All of these sectors could end up being the ones that actually charge and earn. A McKinsey study agrees, suggesting future AI monetization will depend on targeted, value-based services."

Trillions have been invested in AI data centers, chips, and model training while end users generally access AI tools for free. Venture-backed firms rely on free consumer traffic and uncertain enterprise contracts, leaving monetization immature and infrastructure costs high. Observers warn of bubble dynamics as massive capital inflows lack clear returns, with public market skeptics labeling valuations excessive. Opportunity likely lies with companies that apply foundational models to specific verticals—law, healthcare, logistics—where targeted, value-based services can charge customers. Without customers paying for AI services, the sector faces unsustainable economics and potential value contraction.

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