Are We In An AI Hype Cycle?

hey everyone I have some pretty crazy news to share with you today YC is doing the first ever fall batch applications are due August 27th and we fund you for $500,000 all you have to do is apply on ycombinator comom slapp now let's get on with the episode Nidia became the most valuable company in the world who would have thought there's been a lot of concerns with the different articles online as are saying is AI is overinvestment [Music] hey everyone welcome back to another episode of the Lite cone I'm Gary this is Jared Harge and Diana and collectively we have funded companies worth hundreds of billions of dollars but when they were just you know one or two people sometimes just an idea one of the things that we're doing a lot of these days is funding AI companies these are some of the things that people are saying about AI now that it's a hype cycle that nobody's ever going to make money out of this can you look at how much money is being put into Nvidia into Data Centers there's just no way numerically that this whole Space could possibly make money this is do all over again this is the Crypt boom and bust all over again you know Doom and Gloom deceleration is type stuff one of the memes that comes to mind for me when I think about Market hysteria is this hilarious cartoon it's uh pretty famous I've got a stock here that could really Excel sell Excel sell sell sell sell and then the next frame is this is madness I can't take it anymore goodbye goodbye bye bye bye it's just like the sort of Madness that overtakes the market we're also really familiar with the Gartner hype cycle or we have our own version of it which is sort of the life cycle of a YC startup which is sort of the Wiggles of false hope and then like long trough of sorrow and then you know finally actually getting to the promised land where are we right now you know a lot of people uh who we saw who were just starting out in their careers asked us at startup school just a few Just A Week Ago should I actually even be working on AI right now which is like the craziest question from what I can tell where's that fear coming from from all the found Founders that are looking for an idea they're like looking at this is this real or is this a hype when you're early in your career you actually you know have maybe read about uh the hype Cycles in the past the the $200,000 parties every Friday or Saturday nights just like free flowing booze and just crazy bakanal in San Francisco in 1999 1998 like you read about it and you hear oh like all of those companies died and you sort of worry is that you know where we're at now yeah I'd say it's been kind of a surprising experience for me because where we live in Silicon Valley with like our set of like friends and peers who we hang out with like people are basically just talking about AI like all the time and there's a strong consensus that like this is an incredible moment in history but when we all went to Cambridge a few months ago and met with college students um for startup School East not that many of them were working on AI very few of them were actually thinking about AI they were just like going about doing the same like regular old startups that we've seen college students start for like 20 years and I was surprised at how big a disconnect there was between those two worlds the thing that's unusual to me or novel about this current hype cycle is that I feel like startup World always goes through periods of like ideas are hot and you feel like everyone's like like it's this sort of that Meme you just talked about it's like people start getting into a particular genre of idea and then suddenly everyone's working on like uber for x or their social Mobile Local app this time around though that's both happening for AI and startup world but then if you look at like public stock market it's all like AI is having a huge impact there as well like the stock market is up this year but all the gains are coming from like the big tech companies The Magnificent Seven yeah magn 7 it's never been this concentrated in history I believe and if you think of what's driving all of the gains in like the magn and seven big tech companies it's essentially all like AI hype so I think like like I've never seen like the those two things being in sync to this degree before where like the startup stuff and the YC batches are increasingly become like trending towards 100% AI at this point and then the public market returns are essentially 100% like AI driven as well which is why I think this has captured like everyone's sort of imagination but there's also just fear that it's unsustainable and everything's going to pop and crash at some point well is it is it going to pop and crash at some point there's been a lot of concerns with the different articles online that are saying is AI is overinvestment on AI chips I mean Nvidia became the most valuable company in the world who would have thought right and then that's the like the bottom layer of the infrastructure and then a lot of folks are wondering okay you invested in all this infrastructure then something needs to happen to pay dividends for it right sort of like in the early days the analogies with railroads so you lay down the roads are there trains going to come and I mean one very extreme version of whiplash that I feel like uh is just racking all of us right now is sort of remember about maybe a year ago uh when it seemed like there were just a few Foundation models uh that were going to run away with it and there was the threat of becoming not just AGI but as artificial super intelligence you there's sort of this idea that oh no like what if there is no opportunity at all left for literally anyone else it like might destroy society and then I think now with 405b out and thropic uh claw you know sort of 3. 5 sonnet is really quite competitive you actually have choice and we're sort of swinging to this other moment where we're sort of wondering like well how does value acre to Foundation models versus um sort of the the hosting companies I think they're the big winner here and then we hope that actually the software companies themselves whether they're startups or incumbents are uh also just getting the benefit of these Foundation models yeah I feel like because everything is moving so fast it's it's easy to underestimate how important that point is like if we roll ourselves back to the start of 2023 a few months after chat GPT had just launched and we were starting to see the first trickles of like AI ideas in the batch the the chat gbt rapper meme was really out there right like everybody was talking about how all these startups were going to get crushed because chat gbt and open AI would just own everything fast forward a year and a half later it's like it's clearly not going to be the case there's multiple models you've now just got like the first like true Frontier open source model coming out of Facebook which we would never have predicted that's cool right who would have thought the beating and best model was going to be the open source because it was trailing uh six months to a year behind what openi was doing right I remember before this last um llama release like the four of us were just talking about it as wouldn't it just be great if just the lag between like the frontier models and open source like every time there was a new release that open source could catch up like within X months and if we could just make X smaller and smaller it would be very exciting but to be at like essentially parity I don't think any of us even saw that coming a month ago yeah we're there I mean there's that graph that the open source models were on an exponential and ostensibly the frontier models look like they're on an s-curve and what you're saying Gary about the difference in terms of what the current batch right now in summer is using for models versus let's say six months to a year ago is very different I do remember the numbers roughly in the previous batches I want to say like 90ish perent 80% of folks were using open AI models because that was the best and that's simply what was working and now uh we did a casual survey and Son it claw 3. 5 there's actually quite a lot of folks using it back then it was only like one or two folks companies and now there's like a couple dozen of them using it and also Lama is like a lot more so I think we're seeing the open AI model usage uh because all of these are becoming comp of losing market share in the current batch as we speak yeah Gary I think you make a really good point about it being not clear where the value URS like even if you believe that AI is going to be massive and it's going to be like trillions of dollars of value created there's still a great deal of uncertainty over who will capture the Lion Share of that is it the GPU makers is it the hosting providers is it the model developers is it the application developers like like which pieces get commoditized and which pieces become incredibly valuable and reminds me a lot of like both web 1.

0 and Web 2. 0 you had the same phenomenon where there were a lot of people were very bullish about the overall space but it wasn't clear where you wanted to live in the space like even if you go back to like web 1.